Q2 2022 Ashland Global Holdings Inc Earnings Call

April 27, 2022

[music].

Okay.

Hello.

Thank you for standing by and welcome to Ashland, Inc. Second quarter 2022 earnings Conference call. At this time all participants are in a listen only mode. After the speaker presentation there'll be a question and answer session.

A question during the session you will need to press star one on your telephone. Please be advised that today's conference is being recorded if you require any further assistance. Please press star zero I would now like to hand, the conference over to your speaker today, Seth Mrozek director of Investor Relations. Please go ahead.

Thank you Josh.

Hello, everyone and welcome to Ashland's second quarter fiscal year 2022 earnings conference call and webcast my.

My name is Seth Mrozek director Ashland Investor Relations.

Joining me on the call today are Guillermo Novo Ashland Chair, and Chief Executive Officer, and Kevin Willis Senior Vice President and Chief Financial Officer.

We released preliminary results for the quarter ended March 31, 2022 at approximately five PM Eastern time yesterday April 26 <unk>.

The news release issued last night was furnished to the SEC in a form 8-K.

During today's call we will reference slides that are currently being webcast on our website Ashland Dot com under the Investor Relations section. We encourage you to follow along with the webcast during the call.

Please turn to slide two.

As a reminder, during today's call we will be making forward looking statements on several matters, including our outlook for fiscal year 2022.

These forward looking statements are subject to risks and uncertainties that could cause future results or events to differ materially from today's projections.

We believe any such statements are based on reasonable assumptions, but cannot assure that such expectations will be achieved.

Please refer to slide two of the presentation for a more complete explanation of those risks and uncertainties and the limits applicable to forward looking statements. You can also review our most recent Form 10-K under item <unk> for a comprehensive discussion of the risk factors impacting our business. Please.

Please also note that we will be referring to certain actual and projected financial metrics of Ashland on an adjusted basis, which are non-GAAP financial measures.

We will refer to these measures as adjusted and present them.

To supplement your understanding and assessment of the financial performance of our ongoing business non-GAAP measures should not be considered a substitute for or superior to financial measures calculated in accordance with GAAP.

The most directly comparable GAAP measures as well as a reconciliation of the non-GAAP measures to those GAAP measures are available on our website and in the appendix of today's slide presentation.

Please turn to slide three.

Guillermo will begin the call. This morning, with an overview of Ashland's results in the second fiscal quarter.

Kevin will provide a more detailed review of the financial results for the quarter.

Finally, Guillermo will close with key priorities and steps to advance our strategy as discussed during our Investor day in November of last year.

As you saw at the beginning of the webcast Ashland recently launched a new award winning innovative thickness for skin and Sun care it.

It is nature derived and biodegradable.

For for consumers. It provides a desirable skin feel that offers an alternative to poorly perceived carb rumor.

Nature of Fig, <unk> bio cellulose enables our customers to create more natural skincare, creams, lotions, and gels, including organic and inorganic sunscreen formulations with the texture skin feel and sustainability that our consumers desire.

<unk> will provide additional commentary related to Ashland innovation in our product development progress sustainability goals, and environmental and social and governance commitments.

Guillermo will also provide his thoughts on important next steps in our financial outlook for fiscal year 'twenty two.

We will then open the line for questions.

Please turn to slide five and I will turn the call over to Guillermo for his opening comments Guillermo.

Thank you Seth and Hello, everyone. Thank you for your interest in Ashland and for your participation today.

As you will hear during the call <unk> financial results for the second quarter fiscal quarter were consistent with the earnings update we issued on April 12th demonstrating strength and resilience.

In a world of uncertainty and accelerating change.

Dynamics remained strong across our core end markets and we're making significant progress.

Taking appropriate actions and pricing to recover costs across all segments.

Supply chain challenges have not improved, especially with respect to ocean freight.

Although we were able to invoice the backlog of carryover orders from last quarter, given strong demand. We ended the quarter with a larger backlog of orders that we have not yet been able to fill.

Given the tightness in markets globally, our teams have taken steps to improve the mix of high value products, we are selling which is further driving margin expansion.

We continue to invest in future forward sustainable innovations to drive profitable growth accelerating the breath of the pace and impact.

New product introductions.

In short Ashland has undergone a tremendous amount of change we are different company today and the results this quarter and the steps. We are taking are enabled by the company we have become.

Our ability to respond and operate quickly and nimbly is a result of the intentional changes we have made to the company over the past two years. Please.

Please turn to slide six.

Let me share with you some of the second quarter highlights.

Sales of $604 million grew by 19% compared to prior year.

Against the backdrop of strong global demand all businesses contributed to our growth adjusted EBITDA grew by 41% to $163 million.

As all of our teams pursued cost recovery and mix improvement, while maintaining cost discipline.

Adjusted EBITDA margins reached 27% an increase of 420 basis points compared to the prior year quarter.

And our return to shareholders continued to grow with adjusted EPS up 79% to $1 50 per share.

Reflecting the impact of both the earnings growth and our share repurchase program during the quarter.

Please turn to slide seven.

As I noted previously.

Growth.

The company was broad based with all segments, returning double digit sales growth compared to prior year life Science performance remained resilient driven.

Driven by strong demand for high value pharma ingredients.

Personal care demand continues to recover and the business drove disciplined price recovery and mix improvement while the results of silicon Myer portfolio have exceeded our expectations for the first year.

With specialty additives. The team has leveraged tight global supply to drive both mix improvement and cost recovery.

For intermediates growth in sales was driven by higher volumes and transfer pricing for captive BDO sales as well as higher pricing and improved mix for our merchant business.

Merchant market sales for intermediates represents approximately 8%.

<unk> sales.

Ashland sales for the quarter grew by 19% to $164 million and adjusted EBITDA grew 41% to 163 million.

I'm very pleased by the progress made by the Ashland team during the quarter and look forward to discussing our outlook for the remainder.

For the fiscal year and reviewing broader progress by the company later in the call in the meantime, I'll turn it over the call to Kevin to review, our Q2 results in more detail Kevin.

Thank you Guillermo and good morning, everyone. Please turn to slide nine.

Total Ashland sales in the quarter were $604 million.

Up 19% versus prior year.

Favorable foreign currency negatively impacted sales by 3% in the quarter.

Gross margin improved by 500 basis points to 36, 4%, reflecting cost recovery and mix improvements by the commercial teams in the face of significant cost inflation.

In total we saw approximately $48 million of inflation in the quarter versus the prior year across raw materials energy and freight and as expected we were able to recover these costs.

Excluding key items, SG&A, R&D and intangible amortization costs increased to $119 million in the quarter, primarily reflecting the addition of the <unk> business. The elimination of the Ineos transaction transition services agreement and accrued incentive compensation.

In total ashland's adjusted EBITDA for the quarter was $163 million.

A 41% increase compared to the prior year adjusted EBITDA of $116 million.

Ashland's adjusted EBITDA margin for the quarter was 27%.

420 basis point improvement over the prior year again, reflecting the items just discussed.

Adjusted EPS, excluding acquisition amortization for the quarter was $1 50 per share up 79% from the prior year, reflecting both the increased earnings and a lower diluted share count following our recent share repurchase activities.

I'll summarize those repurchases in a bit more detail in a few models.

Ongoing free cash flow was negative $5 million for the quarter.

This essentially reflects an increase in working capital primarily inventory and accounts receivable given the inflation in raw material and other input costs, we have seen globally.

We expect ongoing free cash flow conversion to be positive in the second half of the fiscal year working capital levels will remain elevated assuming continued inflationary trends now.

Now, let's review the results of each of our four operating segments. Please turn to slide 10.

I'll begin with life Sciences, the team executed well in the face of continued supply chain disruptions and raw material inflation.

Sales were $204 million up 10% compared to the prior year quarter.

Currency negatively impacted sales by 3%.

Life Sciences gross profit improved by 14% and gross profit margin improved to 35, 8% as cost recovery and mix improvements more than outpaced overall cost inflation during the quarter.

In total year over year life Sciences cost inflation was approximately $15 million, including $4 million of BDO transfer to the business at market price.

And adjusted EBITDA improved 16% to $58 million and adjusted EBITDA margin in the quarter improved to 28, 4%.

Please turn to slide 11.

Personal care sales were $172 million up 26% from the prior year quarter.

Sales to core personal care end markets were strong reflecting cost recovery and enhanced the mix amid the backdrop of improved demand for our ingredients globally. Following the changes in consumer behavior caused by the pandemic.

The <unk> business was also a meaningful contributor adding $25 million of sales for the quarter.

The acquisition closed partway through the fiscal third quarter of last year. So Q3 will be the last quarter, where comparisons will not be on a like for like basis.

These gains were partially offset by the exit of roughly $10 million of low margin product lines.

Importantly, the organic growth in the personal care business was 16%, excluding the impact of the acquisition and the exited product lines, which follows 8% organic growth in the fiscal first quarter.

We're very pleased by the progress made by the personal care team demonstrate the resilience of the business in the face of challenging global macro headwinds.

Gross profit increased to $67 million and gross margins increased by 320 basis points to 39%, reflecting the cost recovery and mix actions. Despite continued cost inflation experienced by the business.

In total personal care adjusted EBITDA increased by 29% to $49 million adjusted EBITDA margin was strong at 28, 5% despite $10 million of cost inflation in the quarter.

Please turn to slide 12.

Specialty additives had yet another nice quarter with sales up 15% to $182 million.

Demand for architectural coatings additives and other additives remains very strong no shipping and logistics issues continue to be a challenge.

We continue to see a normalization in DIY volumes and the shift to higher contracted paint volumes.

As was the case.

And the last quarter the global cellular network is sold out and we're adding capacity to meet this demand.

Team has taken the opportunity to improve overall product mix in the face of global supply tightness.

Outside of coatings sales to other end markets in specialty additives grew by double digits, reflecting improving demand for performance specialties growth platforms and stronger energy volumes.

Enhanced pricing was an important contributor to sales growth and an offset to approximately $18 million of raw materials energy and freight inflation in the quarter.

As such gross margins increased by 140 basis points to 28%.

And adjusted EBITDA grew by a healthy 20% to $48 million.

Adjusted EBITDA margin also expanded by 110 basis points to 26, 4%.

Please turn to slide 13.

Intermediates reported another very strong quarter as pricing has continued to rise across all product lines.

Sales were $66 million up 78% compared to the prior year.

Nearly half of the year over year sales increase of approximately $20 million was related to captive internal product sales primarily to the life Sciences and personal care end markets.

As a reminder, captive internal sales are recognized at market based pricing and there are eliminated in the consolidation of total Ashland results.

Merchant sales increased by 57% in the quarter again, driven by higher pricing across all product lines.

<unk> margins were up meaningfully during the quarter.

The segment reported adjusted EBITDA of $30 million compared to $7 million in the prior year and adjusted EBITDA margin in Q4 was over 45%.

Please turn to slide 14.

As we discussed at our Investor Day last November capital allocation discipline continues to be an important component of <unk> value creation strategy.

To that end earlier.

During the quarter, we closed on the sale of the performance adhesives business too.

We received gross proceeds of 165 billion.

Net proceeds will be in the range of one two to one 3 billion following the payment of taxes and fees related to the transaction.

Most of the taxes related to the transaction will be paid out during Q3 and Q4 of this year.

When the cash was received we immediately repaid approximately $625 million of floating rate debt. The majority of which is revolving and could be re borrowed at anytime.

This tactical debt repayment will yield approximately $10 million of cash interest expense savings on an annual basis.

Since August of 2021, Ashland has reduced its net leverage from about three six turns to one three turns of EBITDA.

Following the closing of the sale, we also initiated a new $200 million.

Open market share repurchase program and executed on approximately $155 million of repurchases during the March quarter and completed it in early April .

This program is in addition to the $450 million accelerated share repurchase program. We commenced in September of last year and closed just this past February .

Between the two programs Ashland has repurchased approximately $6 $75 million of the company's shares which represents about 11% of the company's equity.

Finally at the time of the adhesive sale closing, we contributed another $35 million of cash through the environmental trusts that we created last year.

With all the work that has been done I'm pleased with the capital discipline being demonstrated.

We've committed $150 million to $200 million of organic growth capital investment over the next three years to increase capacity of our high value ingredients and additives portfolio during the quarter, we continued to execute on those growth plans.

Total capital expenditures in fiscal 'twenty, two should be in the range of $150 million to $170 million.

The business is performing well and the balance sheets in great shape, giving us the flexibility to make organic investments pursue attractive bolt on M&A acquisitions, similar to <unk> and continue to reward our shareholders with capital returns.

Guillermo will spend more time discussing our overall outlook for fiscal 'twenty, two and our underlying assumptions in his closing remarks with that I'll turn the call back over to Guillermo to discuss our priorities and outlook for fiscal 'twenty to Jeremy.

Thank you Kevin Please turn to slide 16.

As I've mentioned at the beginning of the call option is making excellent progress while operating in a world of significant uncertainty and accelerating change.

Our teams continue to demonstrate operating resilience and are delivering strong results.

Against the backdrop of global supply constrained and shipping challenges, we have demonstrated proactive pricing discipline to recover costs and why and a widespread inflationary environment, while also improving our mix management.

And while supply chain challenges have not improved we have improved our global planning to better anticipate how we can be more responsive and efficient.

Our plants continue to run well and we have started to rebuild inventory levels.

We still need to make more progress in this area to build up safety stocks levels across our warehouse network.

We are maintaining our strategic focus on capitalizing on the things that are within our control. This quarter. We saw strong margin performance driven by cost recovery mixed management and disciplined cost management.

And while free cash flow generation was below prior year levels. This was due largely to the impact of rising inflation on working capital balances.

Our increased focus on disciplined innovation is paying off we're accelerating the velocity and our investments in innovation and growth, especially for sustainable ingredients and additives.

We're aligned with the evolving product requirements of our customers and the consumer and are well positioned to capitalize on these emerging trends across the globe.

We are strengthening strengthened our internal innovation portfolio management to both accelerate the pace of new product launches and ensure that these launches create the most value for our customers and perhaps one.

Finally, as Kevin explained in detail, we remain committed to our strategy of disciplined capital allocation.

Beginning this year, we're expanding capacity and numerous high value products globally and continue and we will continue those investments over the next couple of years.

<unk> has the flexibility and discipline to execute our growth strategy and reward our shareholders.

Please turn to slide 17.

Amid COVID-19 environmental and geopolitical disruptions Ashland is a company at an inflection point.

Our transformation goes beyond the traditional business metrics to focus on innovation and conscious stewardship.

Not only through our segment and the value chain.

Our suppliers customers and users and term.

Under our purpose to responsibly solve for a better world. We have taken several actions and made progress under our ESG initiatives for environmental matters.

We have taken important steps.

<unk> to our raw material sourcing operations and product development.

Regarding science based targets, we are validating our mission data to ensure we have accurate targets for approval and expect these targets to be submitted for approval by the end of 2022.

We have established several internal and external programs to support our social improvement agenda.

In March we established our responsible solvers program.

That brings together the company's global philanthropic commitment to science technology, engineering, and math, but where stem education.

With additional spend funding and a paid employee volunteer program.

Closely aligned with our purpose. The program is designed to put the power of the ash of Ashland people and products in the hands of the communities, where our employees work live and play.

Our customizable program allows Ashland manufacturing sites and regional teams to create and support programs that address their specific communities and cultures most pressing local issues.

We continue to make excellent progress in our ESG related strategies and plan to provide updates each quarter.

This is a step change that underscores the company's resilience and hones, our competitive edge. Please turn to slide 18.

In April under our responsible solvers program, we announced an innovative supplier partnership for sustainable profitable growth with local farmers and small villages and.

In India. The program as it has enabled us enabling us to meet customer demand and increase the volume volume of guar harvested annually through educational stem programs and scientific solutions for sustainable farming.

Respecting the sourcing relationships and local cultures of small village farmers in India.

The pilot began with 250 small farms and we are scaling to 5000 farms by 2025.

These relationships are critical because Ashland users war to formulate specialty ingredients for personal care life science, and coatings applications, including products like natural fix bio cellulose for skincare that you saw in the opening video.

These initiatives have increased farmers' yields by approximately 30%, thereby increasing their income lowering their production costs, expanding our local economy and positively impacting the environment.

Also in April we announced our continued support to the nature Conservancy plant 1 billion trees by 2030 Reforestation initiative.

We also made a commitment to fund their stem user engagement.

Nature lab, which.

Which helps students learn.

How nature works, while inspiring them and bringing greater equity to environmental education.

We are confident that by standardizing, our global program and localizing its focus action Ashland can both increase employee engagement on critical issues and focus.

The impact where it matters most in every region of the world.

As we increase our innovation speed and impact we are beginning to be recognized for breakthrough innovations as an example in April Ashland had a very successful presence at the world's largest.

Largest global cosmetics show in Paris.

In addition to repositioning the business and furthering our loyalty of our customers assets Ashland's natural fix Michael's cellulose was awarded brands for the best functional ingredient among nearly 200 entries.

Please turn to slide 19.

New product innovations are an important tenant of our profitable sustainable growth strategy.

By narrowing our focus to markets and applications.

We can have the largest impact we are solving challenges in niche areas, where our innovations really matter.

As a deliberate focused company, we know exactly where we fit and where we have marked the highest margins because we bring the greatest value to our customers.

This year, we will introduce a record number of innovations and we are reaping the benefits of our focus and speed to market nearly.

Nearly 90% of our new innovations are natural natural derived biodegradable or sustainable and use.

By maintaining discipline in both project and portfolio management, we are increasing the number of new product introduction as well as their expected value impact.

Meeting the evolving needs of our customers and the consumer we expect the future revenue and margin contributions from these and future launches to improve the growth trajectory and profit contribution for Ashley.

Please turn to slide 20.

Ashland as a company comprised of problem solvers integrating issues like climate change inclusion and diversity corporate transparency into our business model allows us to play a critical role in some of the greatest challenges on our plan.

These challenges are reshaping our markets as we speak and our so our solution expertise and our responsible solvers problem program add real value.

Our new product introductions demonstrate just one of the ways. We're unlocking profitable growth. These innovations are also allowing us to create value for both our customers and for Ashland.

We appreciate the awards and recognition we have received as they reinforce that we are on the right path.

We see ESG as a business opportunity beyond doing the right thing.

And here, we are demonstrating this through the execution of high performing sustainable innovation, enabling our customers to get ahead of Megatrends and respond to the ever dynamic needs of the global consumer.

Please turn to slide 21.

As we approach each of our priorities in a disciplined way we recognize they are overlapping nature.

Under our new business model, we have empowered our organization, we have driven decision, making to those closest to the customer each business leader and the regional teams own their business and circumstances, but all share these disciplines leaders adopt their priorities to circumstances.

That unlock profitable growth, while maintaining operating discipline.

Our priorities remain focused on growing our business, while maintaining its quality driving profitable growth opportunities margin and free cash flow expansion, while leveraging ESG as a core value at a neighborhood.

Please turn to slide 23.

Looking to the future is never easy.

In this current environment is extremely challenging to put it mildly.

<unk> have not changed demand.

<unk> resilience customers still need to build rebuild inventories and COVID-19 reopening is having a favorable impact across many parts of the world.

Plants continue to run well and raw material availability has started to improve.

Our pricing actions have positioned us well relative to the past and current inflation pressures and we are ready to take further action is needed.

Although the supply chain reliability remains.

A challenge we have started to see some improvement on the trucking side.

The headwinds have changed from an IFF and impact to how much.

There is a Ukraine war, China has moved to Covid, lockdowns and inflation, especially energy driven inflation has increase and it is accelerating.

It's very difficult for us to forecast the direction and impact of the war in Ukraine, Covid lockdowns or inflation.

Please turn to slide 24.

We understand the key performance variables that are likely to impact our performance.

On the revenue side demand in our market is expected to remain resilient during our fiscal year and we do not expect significant improvement and supply chain reliability as such our ability to supply.

We will most likely drive our revenue performance.

How well our plants run and our ability to rebuild safety stock to offset the low ocean freight liability.

On the profitability side inflation.

Is probably a given driven by energy and bras broad based drivers issue is how much and when.

The biggest risk to our fiscal year performance will be fiscal year fourth quarter, because we will have less time to offset any cost inflation with pricing actions pricing.

Pricing.

Mix improvement and productivity will continue to drive our margin performance.

Please turn to slide 25.

Given all the dynamics have discussed based on the information we have and the actions. We've taken we remain confident in the financial outlook, we provided at the beginning of the fiscal year.

We continue to expect sales in the range of $2 two five to $2 35 billion, representing 9% of sales over the prior year at the midpoint.

We also continue to expect adjusted EBITDA in the range of $550 million to $570 million.

Based on known information today, our model puts us above the midpoint of that range for the full year.

However, similar to what we saw in the first half of fiscal year 2021, we recognize that there is still lot of uncertainty from the Ukraine War Covid.

Covid lockdowns in China inflation and shipping reliability.

Our outlook presumes that we do not see significant significant additional inflation in raw materials and energy as such dynamics would require additional pricing actions beyond those that are already planned for which we would need to recognize a lager.

<unk> timing for the realization.

Let me be clear as we did in 2020, when Covid emerged and uncertainty was high.

We're being pragmatic and focusing on the things that we can control and forecast for what we cannot control we will focus on planning and building resilience, we do not see a lot of value and being overly optimistic or pessimistic baked based on external factors that we cannot control or forecast as this would only.

More noise in our planning process.

As external developments become clear, we will maintain our current level of transparency and we will communicate any changes in our outlook as appropriate.

<unk> is well positioned to have confidence in the company's business portfolio market focus global team and our plan and the actions that were taken action Ashland has demonstrated its resilience through the last two years and we are confident that we will maintain that resilience in 2022 and beyond please.

Please turn to slide 27.

Over the past decade, Ashton's journey of transformation I have sharpened our focus as in additives and specialty ingredients company, we're systematically identifying and tackling the thorniest problems.

We concentrate on areas of rich opportunities to innovate and drive value for our customers, where innovation and expertise in one of our businesses can be leveraged across others.

In closing I want to thank the OSM solvers once again for their leadership and proactive ownership of their business in an uncertain environment.

We create our destiny as a global additives and ingredients company with exceptional businesses that have leadership positions in resilient high quality consumers.

Given markets I'm pleased by the resilience and execution demonstrated by our people and our businesses and look forward to the opportunities that lie ahead. Thank.

Thank you and operator, if we could move to Q&A.

Thank you as a reminder to ask a question you will need to press star one on your telephone to withdraw your question Christopher peak.

Our first question comes from John Mcnulty with BMO capital markets. You May proceed with your question.

Yeah. Thanks for taking my question and congratulations on some some really solid results.

Wanted to dig in a little bit into the into the life Sciences area, you had a heck of a jump in terms of overall profitability as well as sales, but but certainly the profits are kind of at record levels and I guess, just given how much noise theres been around the lumpiness of logistics and that kind of thing like is this kind of a one off hey, we kind of.

Did kind of better than even even normal because we had a little bit of catch up or is this kind of a good run rate and if it is a good run rate here I guess, what's what's driving that.

Enhanced profitability, how should we be thinking about that.

I think as we said in the call.

The we have moved up more on price, especially starting at the end of last quarter.

To recover a lot of the inflation that we've seen and the mix impact has been very favorable. This quarter pharma was was very strong we still have a lot of orders with.

We shipped around the world. So theres still the backlog is still there.

And the parts that were a little bit softer we're in the nutraceutical area, where we continue to have more of the manufacturing.

Labor availability issues impacting some of our ability to supply in the U S. So it was more of a mix impact, but as we look forward, we expect karma to remain resilient.

And.

Hopefully, we'll see some pickup in the nutraceutical side for the <unk>.

Back end of the year.

Got it got it that's helpful.

Okay, and then I guess just as the follow up question just around.

The innovation pipeline because it looks like it's pretty dynamic it does seem like the wheels finally, starting to really turn here I guess can you. When you look at the five year revenue potential that you outlined can you help us to understand the magnitude of that can you give us either kind of a dollar value or is there a way to think about.

How you see the vitality index moving from kind of the current levels too.

That year, five kind of timeframe can you help us.

Kind of gauge that a little bit.

Youre going to see us talk more and more about that as we move forward right now we're being a little bit more careful because as you said a lot of the different businesses are advancing their portfolios.

Because frankly because of the.

The cosmetics show in Paris. So we have had a lot of launches there those more and more public and some of the other businesses that we're working on things that we haven't been public yet. So we don't want to just start giving data on one business. So we're waiting to get more advanced in some of our launches.

But as you said I think the biggest focus that we've had is not just accelerating the launches we had things in our pipeline and I think I've mentioned this in one of our prior calls.

Whatever it was in the pipeline bigger small, let's move them through so that we can launch them and really using the time that we spent in 2000.

'twenty, and especially 2021 and advancing the newer innovation, that's what excites me that we're bringing out a lot of these newer products that are having a higher impact and that are much more aligned with our sustainability strategy that theyre coming through so these are much bigger value you can see in the graph the number of launches.

Significantly higher but the value of them.

As a higher impact and that's what we're trying to do.

But I'd, rather wait to give a little bit more specifics once some of these things are public we have a lot of things that are IP protected that we're filing patents and stuff.

It'll take us a little bit more time, we're still.

In the earlier stages as we talked about in 2021.

Innovation takes time and you're just starting to see the early phases of that roll off. So if you look at 2023 2024.

Expect those to continue to be very strong for us as we move forward, both in new product launches and increasing that impact level, and that's really where a lot of this portfolio management is helping us really honing in on.

Projects that might be interesting, but they're not high impact versus where really we can move the needle in the long term.

Got it thanks for the color no that definitely helps filling a lot of legs.

Okay.

Thank you. Our next question comes from Chris Parkinson with <unk>. You May proceed with your question.

Awesome. Thank you so Guillermo I understand you don't want to get too much into specifics.

But you have been launching over a period of time.

Large portfolio of naphtha base responsibly sourced products, a bunch of things in Realogy some of that was in Cogs.

Just broadly top down where you stand right here right now with the portfolio in personal care with pricing and end market demand from your customer base.

Simple question, what's your best degree of conviction on the three to 400 basis points of Subsegment outperformance.

So I think youre going to start seeing that that grow over time, I think right now.

There's two dynamics just managing the shorter term.

The dynamics of managing the inflation and mix.

Obviously, the mix is improving as we go you're starting to see the growth of some of the newer areas like the schulke contributions, but having a bigger impact.

Similar to life Science I think in our last call. We mentioned <unk> personal care, we're a little bit slower on the pricing youre starting to see that come through so definitely theres clearly some improvement there, but I think the longer term, we feel very confident that we can start really driving some of these innovations most of these new innovations will come with greater Val.

For our customers and all of these also greater opportunity to for us to differentiate our products and expand margins as we go I will say and just for all the businesses.

In the near term, especially when Youre managing through these very high peaks of inflation, there is going to be some noise over and under and some of the margins and that's going to be an issue of the flow through of cost through the system in terms of accounting.

As well as we want our margins they need to be a bit higher than the inflation because some things. If you look at energy for example, some of our plants are hedged if energy stays at these levels and the hedges next year, we're going to go higher you're going to see more inflation. So we're.

<unk> and taking actions based on where we see the ball in the future.

And not just how it's flowing through in our numbers. So we.

We want to make sure that we're maximizing both that short term performance.

But also getting that mix and that innovation to drive that longer term margin improvement.

Got it and just a real quick.

Corollary like northeast question, just turning back to lifetimes it very quickly.

There's always been a lot of drivers.

Of the existing portfolio, but if you just took a moment that it's absolutely parse that out for us in terms of what youre seeing in the let's say the legacy <unk>.

Portfolio.

New therapeutic drug launches some of which to my knowledge for kind of delayed or kicked it from your customers during COVID-19 , which are now potentially bearing fruit and then also the outlook.

For <unk>, specifically in Asia Central Asia, So on and so forth.

How are you thinking about the different moving parts within your life Sciences portfolio, and then perhaps a very quick comment.

On M&A in Injectables. Thank you okay. So.

So we're looking still at robust resilient.

Our pharma segment, especially in the OSB I think.

There has been and I think we've mentioned in the past some impact with just funding. If you look at some of the drugs that require government funding like H H drugs. As an example, they have been softer we're seeing some improvement there. Some of these drugs. For example are used in some of the Covid.

And in conjunction with some of the Covid drug score before the therapy. So we're seeing some increase there. So clearly we are seeing some improvement as things normalize and there is some of the drugs that were in are used in.

Some of the new therapies for Covid and other areas. So we will continue to see the segment growth I think it will be that that the model that we have is still this continuous steady growth.

Of that segment as we move forward and Injectables, we continue to make progress.

In terms of our.

Poly resorbable polymers, we had some good sales.

This quarter.

With some of the customers that are doing testing and trials or would that be some of their drug development.

And we are working through our longer term strategy on both the organic growth that we are investing more and youll see us investing more in R&D in this area to drive the organic side recognizing that it is a longer pipeline, but we believe that we need to make those investments too.

To get the momentum over the long term.

And we are continuing to work the <unk>.

M&A side.

The equation too.

Great color.

Alrighty.

Thank you. Our next question comes from Josh Spector with UBS you May proceed with your question.

Yeah, Hi, Thanks for taking my question.

Just if I look at the performance in your fiscal second quarter and I look at your guidance, you're essentially guiding that sales remain at a similar level, but EBITDA is maybe down $20 million a quarter, where margins are down a couple of hundred basis points. What are the main buckets that drive that EBITDA step down sequentially.

I think we there's a lot of uncertainty at this point in time.

As we set our models.

Model again, some additional inflation and the timing for us too.

To get that that recovery.

Hum.

The lockdowns have been an impact.

Not sure how long they get a lot last in China.

And the worn Ukraine, it's not a big part of our total our direct portfolio, but we have to see what some of some of these impacts are and and.

And specifically you even today one of the biggest risk we would have in terms of the Ukraine is energy availability, it's not just the inflation, but the availability in Europe , even today as you already see some of those those concerns. So we're just being realistic that things are going to happen and we just can't project that things are.

They're going to be just linear and we're going to continue to grow. So we're factoring all of those those those issues in.

And we believe we believe theres going to be some surprises and we just need to factor them into our outlook.

Josh the other two.

Two more things, but the one thing we know we're going to have issues.

A large turnaround at our Lima, Ohio facility to mediate the BDO plant.

That will be most likely a $10 million to $12 million impact.

In Q3.

We do that about every three years and it's time to do it again I think the other the other piece of the equation is currently we've seen the euro continues to weaken which which is which isn't drag on.

On our earnings as we convert euros to dollars.

So those.

Those will be the two key things.

I would also add to the equation, so theres a bit of conservatism in the overall overall mix here, but there are some things that we know and there's a lot of things, but we don't.

Okay. No that's very helpful. I appreciate that and just.

When you go through the commentary on all of the segments. I think you highlighted positive mix in essentially all three of the core segments and you talk about your capacity constrained, which is also enabled some improvement of mix, what's your ability to hold onto some of that better mix and how do you weigh expanding capacity to meet some of the unmet demand maybe on the lower mix.

<unk> versus maintaining a higher margin mix overall.

On the mix side, we're using the opportunity this is.

More constructive time I would say if we wanted to change that makes it any way.

This is allowing us to do it in a more constructive way.

I think the least constructive ways.

Exiting businesses like we did in the low and.

This is allowing us to sort of manage through that process and hone in on the market segments that we really see that long term differ.

A differentiation and ability to grow.

So obviously.

Coatings is very important to us construction.

Personal care life science, so, we're shifting that portfolio and upgrading.

The where we allocate our kilos of capacity in our key raw materials as we go.

And then in areas like.

The intermediates, where we're just trying to be smart about how we manage the short term opportunities.

Some of our merchant business is through the mix also where we can get the most value most.

Most of the business there is not BDO per se. It's other derivatives. So we can look at what what markets or what regions, we want to position those sales.

Okay. Thank you.

Yeah.

Thank you. Our next question comes from David Begleiter with Deutsche Bank. You May proceed with your question.

Yes.

Your line is open David.

Hi, there I apologize for that good morning, I came out in the quarter, the selling price increases offset raw material costs.

Yes.

We offset raw material costs.

And also other other costs too.

<unk>.

So it definitely was.

A net positive.

The part that we've tried to do is get ahead of the curve I mean the.

More delays you have in pricing.

Then the bigger actions need to be later on so moving early.

I think as one of the big learnings is.

The sooner you do it.

Lessons.

The increased needs to be in the greater the impact youre going to get the benefit of time.

Very good and just on the shipping and logistics issues.

Why do you think they'll get better and what was the impact if any in Q2 and what's your expectation of when you have an impact in the back half of the year.

Like I said the trucking, we're starting to see some level of improvement I think theres still going to be depending on the region.

Some noise I assume with some of the new developments.

Europe , you will see a little bit more noise on the trucking side, there, but we have seen some some level of improvement.

So I think throughout the year, that's one that should start to be see improvement.

And the impact is shorter term because youre talking about days and delays.

Unfortunately in the Ocean freight side all indications is this is not going to improve that quickly.

Barring that.

Demand really drops across the world.

And.

Opens up a lot of capacity most of the outlooks that we have seen is more towards the back end of 2023 and into 2024, because it's about capacity. It's about the port capacity is not just shifting capacity. So there's several dynamics in that area that will take a little bit more time.

That's why for US, it's really building that inventory, although our inventories have gone up.

Our safety stocks at the other side.

Not where they need to be still so this is work that we're going to probably be doing throughout the entire year to catch to catch up and the balance is going to be producing to.

Full capacity so it's either we're selling it or we are building inventories. So the demand goes up it just puts more pressure on the inventory side of the equation.

Thank you.

Thank you. Our next question comes from Laurence Alexander with Jefferies. You May proceed with your question.

So good morning, guys. Thanks, So two quick ones on the negative sales trends reported for the Nutraceuticals and nutritional ingredients.

Product categories.

Given the amount of inflation, you're passing through if you backed back how kind of the underlying level of inflation when should those categories get back to positive year over year comps.

<unk>.

Sorry go ahead.

And then I'll just answer that one the issue of supply I mean, we're passing.

The cost we can demand is very robust, it's really more issues about our ability to produce.

A lot of our plants are in the east coast.

So labor has been the bigger issue.

And we're working through that so it's really more not a demand or margin issue as much as it is about our our ability to supply and thats where were putting a lot of our energy.

So probably more like within three to six months as opposed to 12 to 18 is that fair, yes, yes, yes, it's more about Austin, our ability, it's not a market issue.

And Laurence on the on the nutrition. Unlike the nutrition side, we have a lot of cellulosic stability to nutrition.

And that tends to be a lower margin segment for us and given that we are.

We are sold out us as the global market. Most most of these products as part of the mix improvement strategy of the business as well.

Material move it to higher margin end markets, so you're going to see some pockets, which is there we're being we're being thoughtful about that can has to it has to create long term value as well as short term, but you'll also see some some volume movements amongst the end markets.

As a result of where we are from a capacity perspective.

Okay, that's very helpful.

With the new product pipeline is that net of cannibalization or is that in terms of that's a gross number.

There's going to be growth I think.

The key priority is growth if you look across all all of the businesses.

If you look at some of the dynamics in personal care. For example, we're looking at the industry shift and sustainability. The majority of our growth opportunities, replacing other other products that are going to be replaced but we're also working to replace ourselves and some of the products moving to more biodegradable.

This natural natural derived sustainable profile, so mostly growth, but there are some areas that we're going to try to replace ourselves too.

Okay, great. Thank you.

Yes.

Thank you. Our next question comes from Mike Sison with Wells Fargo. You May proceed with your question.

Hey, guys really nice quarter there.

Okay.

In terms of personal care, you guys talked about 16% organic growth pretty impressive just curious how much of that was volume and price.

I know you have some product rationalization there.

And does that volume growth improve as again into the second half second half.

Yeah. So so so we do see a lot of opportunities for volume growth in our business. Obviously, if you look at some of the Cellulosic. Some of these things we're managing so you might see growth as Kevin said in one segment and we're shifting things around and as we bring on Debottleneck in new capacity.

That will enable some growth, but if you look at personal care. There is a lot of other other technologies that are not capacity limited. So there is the opportunity for growth I would point out.

The showcase shogi.

Is performing extremely well.

One of the tenants is.

European based company it was global but a lot of the business based in Europe , we can help it.

Our globalized, so driving global growth.

And that product line is going to be very very important for us that would be a net volume revenue growth Biopharma <unk>, we're investing in putting capacity.

In China and in servicing and developing products in Asia for the Asian customers. So that will also be opportunities for growth.

Some of these.

We're like mattresses fix is really targeted at replacing Carver Mers, which is one of the big categories probably.

400, plus million dollars market just in the personal care space.

That a lot of customers want to replace them with more and more sustainable solutions.

<unk> solutions. So there's a lot of a lot of opportunities for both volume growth.

And also we will continue to drive that mix improvement and other parts of our portfolio.

Mike.

Looking at looking at personal care for the quarter about two thirds of that 16%.

As in the form of mix and volume.

And there is some at least some negative currency in that as well so on a like for like basis, it would actually be better than that.

Got it and then just one quick follow up in terms of your outlook.

Pretty EBITDA being in the midpoint or higher or above the midpoint.

It is the case, but all the segments are contributing to the better performance.

For the second half of the year.

Yes, so all businesses are contributing.

And in terms of.

The margin.

And recovery.

And mix improvements so we should see that I do think.

As I've mentioned the timing of flow throughs.

Youre going to see some normalization.

The issue when you move on pricing versus when the costs come in or when it reflects so theres going to be some some adjustments.

But all of them are improving and we're moving into our strategic direction of improving our margins, but Kevin I don't know if you want to add anything else.

Yeah, just just again another reminder.

The intermediates business will be negatively impacted primarily because of the alignment of turnaround.

And we're also seeing cost inflation there that's rolling through so those results will be more muted.

The good news there is as you look at the what the three core.

Segments aside from that there.

We're going to more than pick up in July .

Yes.

Thank you. Our next question comes from Mike Harrison with Seaport You May proceed with your question.

Hi, good morning.

Hey, Mike.

In the past and your personal care business would you have had some macro declines, particularly in emerging markets you have seen some trading down to lower cost personal care products, particularly hair care.

<unk> that you've recently taken some steps to improve your position, but as we start to see inflation impacting consumers and maybe some changes in consumer behavior, how much of an impact could trading down to lower end products have under personal care volumes.

I don't think that that has been as big of a driver I think it's been more just where we positioned the new products, it's more of that sustainability push.

As as.

The market is moving to a more recession environment could that be delayed a little bit I don't think the direction is going to change all of the companies are pretty committed on their environmental commitments to drive that and I think that's the biggest change change driver.

What's happening right now.

I think youll continue to see it.

So there are some delays in the portfolio stays much more balanced as it has over the last two years. So.

I don't think theres going to be a negative a negative.

Impact on moving to lower.

The lower cost that would require a significantly formulation work.

From customers that they just want to do it.

Right now.

Alright, and then on the coding side you mentioned the normalization that's going on at DIY and more of a shift back to the pro contractor market.

One of the large coatings companies has kind of referenced that even within the contractor market. There has been a positive mix shift to higher quality painful presumably that's using more of your additives, but can you just talk about kind of what youre seeing in terms of the mix in coatings I guess normal.

We would think that DIY is as positive for you guys, but is it turning out that youre seeing some positive mix with this contractor trend right now yes.

Yes.

Right now, it's more what's driving the demand.

We're very well positioned both with our cellulose <unk> also with our Aqua flow, we see a lot of very good performance there, but Mike is frankly as we said everything is at capacity. So if theres. Some changes we don't necessarily see it like it's a big driver we're trying to produce as much.

As we can and supply as much as we can with our customers I think the move to higher quality paints.

Obviously very favorable for us.

I also think it's also a good sustainability move.

Move.

Long higher quality means longer lasting which means from a cycle. It's just better better all round in terms of cost performance and environmental performance for for the industry and for for the World. So I think theres. All those are all mega trends that are playing well for us.

And some of the newer technologies that we're introducing.

Alright, and just a quick one for Kevin compared to the 57 million share.

Share count in this quarter, what share count should we be modeling next quarter.

Okay.

It'll be lower [laughter].

It'll it'll be about $56 million.

56, alright, thanks, very much yeah sure.

Thank you. Our next question comes from John Mcnulty with BMO Capital markets. You May proceed with your questions. Yes, sorry, one last follow up just on the on the capital allocation side. So.

You've had a pretty balanced approach in terms of M&A and buybacks admittedly buybacks at this last quarter, we are bigger than what we were expecting them to be.

I guess should we be thinking about kind of a more balanced pace going forward and then kind of maybe what we've seen over the last quarter or maybe even dialing back the buybacks or do you still feel like hey look given that you're undervalued your own stock in a lot of cases may be the best place to be putting capital I guess, how should we be thinking about that.

Let me make some comments and then.

Kevin I'll, let you comment more balance sheet, and where we feel we need to be but.

Now I think we've taken actions appropriate actions in terms of buybacks too.

Recognize our value.

The company in terms of.

Where we believe we should be in the long term value.

However, I think as we move forward, we do want to make sure that growth is the bigger driver and that we maintain that capability to drive quality growth. Both the capex I think we have enough capital, but we do want to do.

Our high value strategic M&A.

Align online with our focus of.

<unk> pharmaceuticals, with Injectables is a big big focus area personal care and coatings, so that will be a priority going forward to get to where we want to get buybacks help make a point.

In support of our shareholders, but but really it's about that growth continuing to shift our portfolio to those higher higher end markets and technologies and that we wanted to make that our top priority.

Okay.

Not really.

Yeah. The only thing I would add is your balance sheet in pristine condition.

This point and we've got a lot of flexibility to do a lot of things.

At just over.

One times net leverage.

We've got we've got a lot of capacity to do to do multiple things and I think youre going to continue to see us to do a mix I mean, it's our view that.

Even at the current share price. The company is very undervalued right now so bancshares is still an opportunity, but as Guillermo said.

To really realize the value creation, that's possible we've got to continue to be focused on organic growth so expanding capacity to do that.

Well as these inorganic opportunities around high value, but but disciplined M&A.

Two to continue.

To continue to.

To meet our agenda as we've laid it out and as we said back in November .

Going to be a mix, we we plan to do all three of those things over over the course of time, we've done that before then they're not mutually exclusive activities.

And we were Fortunately in just a really really nice position to be able to do this in correctly.

Got it I appreciate the thoughts.

Yeah.

Okay.

Thank you and I'm not showing any further questions. At this time I would now like to turn the call back over to Guillermo Novo for any further remarks, okay well wanted to thank everybody for your participation and interest I want to thank also the entire Ashland team for great performance in.

Quarter.

And we look forward to.

Connecting with you in the coming weeks.

I look forward to our next call. So thank you very much everyone.

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

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Hello, Thank you for standing by and welcome to Ashland, Inc. Second quarter 2022 earnings Conference call.

At this time all participants are in a listen only mode. After the speaker presentation. There will be a question and answer session to ask a question. During the session you will need to press star one on your telephone. Please be advised that today's conference is being recorded if you require any further assistance. Please press star zero I would now like to hand, the conference over to your speaker.

Today.

<unk> director of Investor Relations. Please go ahead.

Thank you Josh.

Hello, everyone and welcome to Ashland's second quarter fiscal year 2022 earnings conference call and webcast my.

My name is Seth Mrozek director Ashland Investor Relations.

Joining me on the call today are Guillermo Novo Ashland Chair, and Chief Executive Officer, and Kevin Willis Senior Vice President and Chief Financial Officer.

We released preliminary results for the quarter ended March 31, 2022 at approximately five P. M. Eastern time yesterday April 26.

The news release issued last night was furnished to the S. E C in a form 8-K.

During today's call we will reference slides that are currently being webcast on our website Ashland dot com under the Investor Relations section.

Encourage you to follow along with the webcast during the call.

Please turn to slide two.

As a reminder, during today's call we will be making forward looking statements on several matters, including our outlook for fiscal year 2022.

These forward looking statements are subject to risks and uncertainties that could cause future results or events to differ materially from today's projections.

We believe any such statements are based on reasonable assumptions, but cannot assure that such expectations will be achieved.

Please refer to slide two of the presentation for a more complete explanation of those risks and uncertainties and the limits applicable to forward looking statements. You can also review our most recent Form 10-K under item one a for a comprehensive discussion of the risk factors impacting our business. Please.

Please also note that we will be referring to certain actual and projected financial metrics of Ashland on an adjusted basis, which are non-GAAP financial measures.

We will refer to these measures as adjusted and present them.

The most directly comparable GAAP measures as well as reconciliation of the non-GAAP measures to those GAAP measures are available on our website and in the appendix of today's slide presentation.

Please turn to slide three.

Guillermo will begin the call. This morning, with an overview of Ashland's results in the second fiscal quarter.

Kevin will provide a more detailed review of the financial results for the quarter.

Finally, Guillermo will close with key priorities and steps to advance our strategy as discussed during our Investor day in November of last year.

As you saw at the beginning of the webcast Ashland recently launched a new award winning innovative thickener for skin and Sun care it.

It is nature derived and biodegradable.

For consumers. It provides a desirable skin feel that offers an alternative to poorly perceive carbonara.

Nature safe sex bio cellulose enables our customers to create more natural skincare, creams, lotions, and gels, including organic and inorganic sunscreen formulations with the texture skin feel and sustainability that our consumers desire.

Jeremy will provide additional commentary related to Ashland innovation in our product development progress sustainability goals, and environmental social and governance commitments.

Guillermo will also provide his thoughts on important next steps in our financial outlook for fiscal year 'twenty two.

We will then open the line for questions.

Please turn to slide five and I will turn the call over to Guillermo for his opening comments Guillermo.

Thank you Seth and Hello, everyone. Thank you for your interest in Ashland and for your participation today.

As you will hear during the call <unk> financial results for the second quarter fiscal quarter were consistent with the earnings update we issued on April 12th demonstrating strength and resent resilience in a world of uncertainty and accelerating change.

Customer dynamics remained strong across our core end markets and we're making significant progress.

And taking appropriate actions and pricing to recover costs across all segments.

Supply chain challenges have not improved, especially with respect to ocean freight.

Although we were able to invoice the backlog of carryover orders from last quarter, given strong demand. We ended the quarter with a larger backlog of orders that we have not yet been able to fill.

Given the tightness in markets globally, our teams have taken steps to improve the mix of high value products, we are selling which is further driving margin expansion.

We continue to invest in future forward sustainable innovations to drive profitable growth accelerating.

The pace and impact of new product introductions.

In short Ashland has undergone a tremendous amount of change we're different company today and the results this quarter and the steps. We are taking are enabled by the company we have become.

Our ability to respond and operate quickly and nimbly is a result of the intentional changes we have made to the company over the past two years. Please.

Please turn to slide six.

Let me share with you some of the second quarter highlights.

Sales of $604 million grew by 19% compared to prior year.

Against the backdrop of strong global demand all businesses contributed to our growth adjusted EBITDA grew by 41% to $163 million.

As all of our teams pursued cost recovery and mix improvement, while maintaining cost discipline.

Adjusted EBITDA margins reached 27% an increase of 420 basis points compared to the prior year quarter.

And our return to shareholders continued to grow with adjusted EPS up 79% to $1 50 per share.

Reflecting the impact of both the earnings growth and our share repurchase program during the quarter.

Please turn to slide seven.

As I noted previously.

Growth.

The company was broad based with all segments, returning double digit sales growth compared to prior year life Science performance remained resilient driven by strong demand for high value pharma ingredients.

With specialty additives. The team has leveraged tight global supply to drive both mix improvement and cost recovery.

For intermediates growth in sales was driven by higher volumes and transfer pricing for captive BDO sales as well as higher pricing and improved mix for our merchant business.

Merchant market sales for intermediates represents approximately 8% of Ashland sales.

Ashland sales for the quarter grew by 19% to $164 million and adjusted EBITDA grew 41% to 163 million.

I'm very pleased by the progress made by the Ashland team during the quarter and look forward to discussing our outlook for the remainder.

The fiscal year and reviewing broader progress by the company later in the call in the meantime, I'll turn it over the call to Kevin to review, our Q2 results in more detail Kevin.

Thank you Guillermo and good morning, everyone. Please turn to slide nine.

Total Ashland sales in the quarter were $604 million up 19% versus prior year.

Favorable foreign currency negatively impacted sales by 3% in the quarter.

Gross margin improved by 500 basis points to 36, 4%, reflecting cost recovery and mix improvements by the commercial teams in the face of significant cost inflation.

In total we saw approximately $48 million of inflation in the quarter versus the prior year across raw materials energy and freight and as expected we were able to recover these costs.

In total ashland's adjusted EBITDA for the quarter was $163 million or.

41% increase compared to the prior year adjusted EBITDA of $116 million.

Ashland's adjusted EBITDA margin for the quarter was 27%.

420 basis point improvement over the prior year again, reflecting the items just discussed.

Adjusted EPS, excluding acquisition and amortization for the quarter was $1 50 per share up 79% from the prior year, reflecting both the increased earnings and a lower diluted share count following our recent share repurchase activities.

I'll summarize those repurchases in a bit more detail in a few models.

Ongoing free cash flow was negative $5 million for the quarter. This essentially reflects an increase in working capital primarily inventory and accounts receivable given the inflation in raw material and other input costs, we have seen globally.

We expect ongoing free cash flow conversion to be positive in the second half of the fiscal year, though working capital levels will remain elevated assuming continued inflationary trends.

Now, let's review the results of each of our four operating segments. Please turn to slide 10.

I'll begin with life Sciences, the team executed well in the face of continued supply chain disruptions and raw material inflation.

Sales were $204 million up 10% compared to the prior year quarter.

Currency negatively impacted sales by 3%.

Life Sciences gross profit improved by 14% and gross profit margin improved to 35, 8% as cost recovery and mix improvements more than outpaced overall cost inflation during the quarter.

In total year over year life Sciences cost inflation was approximately $15 million, including $4 million of BDO transfer into the business of market place.

And adjusted EBITDA improved 16% to $58 million and adjusted EBITDA margin in the quarter improved to 28, 4%.

Please turn to slide 11.

Personal care sales were $172 million up 26% from the prior year quarter.

Sales to core personal care end markets were strong.

Collecting cost recovery and enhanced the mix amid the backdrop of improved demand for our ingredients globally. Following the changes in consumer behavior caused by the pandemic.

The <unk> business was also a meaningful contributor adding $25 million of sales for the quarter.

The acquisition closed partway through the fiscal third quarter of last year. So Q3 will be the last quarter, where comparisons will not be on a like for like basis.

These gains were partially offset by the exit of roughly $10 million of low margin product lines.

We're very pleased by the progress made by the personal care team demonstrate the resilience of the business in the face of challenging global macro headwinds.

In total personal care adjusted EBITDA increased by 29% to $49 million adjusted EBITDA margin was strong at 28, 5% despite $10 million of cost inflation in the quarter.

Please turn to slide 12.

Specialty additives had yet another nice quarter with sales up 15% to $182 million.

Demand for architectural coatings additives and other additives remains very strong no shipping and logistics issues continue to be a challenge.

We continue to see a normalization in DIY volumes and the shift to higher contractor paint volumes.

As was the case.

In the last quarter, the global cellular network is sold out and we're adding capacity to meet this demand.

The team has taken the opportunity to improve overall product mix in the face of global supply tightness.

Outside of coatings sales to other end markets in specialty additives grew by double digits, reflecting improving demand for performance specialties growth platforms and stronger energy volumes.

Enhanced pricing was an important contributor to sales growth and an offset to approximately $18 million of raw materials energy and freight inflation in the quarter.

As such gross margins increased by 140 basis points to 28%.

And adjusted EBITDA grew by a healthy 20% to $48 million.

Adjusted EBITDA margin also expanded by 110 basis points to 26, 4%.

Please turn to slide 13.

Intermediates reported another very strong quarter as pricing has continued to rise across all product lines.

Sales were $66 million up 78% compared to the prior year.

Nearly half of the year over year sales increase of approximately $20 million was related to captive internal product sales primarily to the life Sciences and personal care end markets.

As a reminder, captive internal sales are recognized at market based pricing and there are eliminated in the consolidation of total Ashland results.

Merchant sales increased by 57% in the quarter again, driven by higher pricing across all product lines.

<unk> margins were up meaningfully during the quarter.

The segment reported adjusted EBITDA of $30 million compared to $7 million in the prior year and adjusted EBITDA margin in Q4 was over 45%.

Please turn to slide 14.

As we discussed at our Investor Day last November capital allocation discipline continues to be an important component of ashland's value creation strategy.

To that end.

During the quarter, we closed on the sale of the performance adhesives business too.

We received gross proceeds of 165 billion.

Net proceeds will be in the range of one two to one 3 billion following the payment of taxes and fees related to the transaction.

Most of the taxes related to the transaction will be paid out during Q3 and Q4 of this year.

When the cash was received we immediately repaid approximately $625 million of floating rate debt. The majority of which is revolving and could be re borrowed at anytime.

This tactical debt repayment will yield approximately $10 million of cash interest expense savings on an annual basis.

Since August of 2021, Ashland has reduced its net leverage from about three six turns to one three turns of EBITDA.

Following the closing of the sale, we also initiated a new $200 million open.

Open market share repurchase program and executed on approximately $155 million of repurchases during the March quarter and completed it in early April .

This program is in addition to the $450 million accelerated share repurchase program. We commenced in September of last year and closed just this past February .

Between the two bedrooms, Ashland has repurchased approximately $6 $75 million of the company's shares which represents about 11% of the company's equity.

Finally at the time of the adhesive sale closing, we contributed another $35 million of cash to the environmental trusts that we created last year.

With all the work that has been done I am pleased with the capital discipline being demonstrated.

We've committed $150 million to $200 million of organic growth capital investment over the next three years to increase capacity of our high value ingredient in additives portfolio. During the quarter. We continued to execute on these growth plans.

Total capital expenditures in fiscal 'twenty, two should be in the range of $150 million to $170 million.

The business is performing well and the balance sheets in great shape, giving us the flexibility to make organic investments pursue attractive bolt on M&A acquisitions similar to shaken there and continue to reward our shareholders with capital returns.

Guillermo will spend more time discussing our overall outlook for fiscal 'twenty, two and our underlying assumptions in his closing remarks with that I will turn the call back over to Guillermo to discuss our priorities and outlook for fiscal 'twenty to Jeremy.

Thank you Kevin Please turn to slide 16.

As I've mentioned at the beginning of the call option is making excellent progress while operating in a world of significant uncertainty and accelerating change.

Our teams continue to demonstrate operating resilience and are delivering strong results.

Against the backdrop of global supply constrained and shipping challenges, we have demonstrated proactive pricing discipline to recover costs and wide and a widespread inflationary environment, while also improving our mix management.

And while supply chain challenges have not improved we have improved our global planning to better anticipate how we can be more responsive and efficient.

Our plants continue to run well and we have started to rebuild inventory levels.

We still need to make more progress in this area to build up safety stocks levels across our warehouse network.

And while free cash flow generation was below prior year levels. This was due largely to the impact of rising inflation on working capital balances.

Our increased focus and discipline in innovation is paying off we're accelerating the velocity and our investments in innovation and growth, especially for sustainable ingredients and additives.

We're aligned with the evolving product requirements of our customers and the consumer and are well positioned to capitalize on these emerging trends across the globe.

Finally, as Kevin explained in detail, we remain committed to our strategy of disciplined capital allocation.

Beginning this year, we're expanding capacity in numerous high value products globally and continue and we will continue those investments over the next couple of years.

Ashland has the flexibility and discipline to execute our growth strategy and reward our shareholders.

Please turn to slide 17.

Amid COVID-19 environmental and geopolitical disruptions Ashland is a company at an inflection point.

Our transformation goes beyond the traditional business metrics to focus on innovation and conscious stewardship.

Not only through our segment in the value chain.

Our suppliers customers and end users in term.

Under our purpose to responsibly solve for a better world. We have taken several actions and made progress under our ESG initiatives for environmental matters.

We have taken important steps.

Related to our raw material sourcing operations and product development.

Regarding science based targets, we are validating our emission data to ensure we have accurate targets for approval and expect these targets to be submitted for approval by the end of 2022.

We have established several internal and external programs to support our social improvement agenda.

In March we established our responsible solvers program.

That brings together the companys global philanthropic commitment to science technology engineering, and math, where stem education.

With additional spend funding and a paid employee volunteer program.

Closely aligned with our purpose. The program is designed to put the power of the ash of Ashland people and products in the hands of the communities, where our employees work live and play.

Our customizable program allows Ashland manufacturing sites and regional teams to create and support programs that address their specific communities and cultures most pressing local issues.

Continue to make excellent progress in our ESG related strategies and plan to provide updates each quarter.

This is a step change that underscores the company's resilience and hones, our competitive edge. Please turn to slide 18.

In April under our responsible solvers program, we announced an innovative supplier partnership for sustainable profitable growth with local farmers and small villages.

In India. The program as it has enabled us enabling us to meet customer demand and increase the volume volume of war harvested annually through educational stem programs and scientific solutions for sustainable farming.

Respecting the sourcing relationship and local cultures of small village farmers in India.

The pilot began with 250 small farms and we're scaling to 5000 farms by 2025.

These initiatives have increased farmers yield by approximately 30%, thereby increasing their income lowering their production cost expanding the local economy and positively impacting the environment.

Also in April we announced our continued support to the nature Conservancy plant 1 billion trees by 2030 Reforestation initiative.

We also made a commitment to fund their stem user engagement.

Nature lab, which.

Which helps students learn.

How nature works, while inspiring them and bringing greater equity to environmental education.

We are confident that by standardizing, our global program and localizing its focus action Ashland can both increase employee engagement on critical issues and focus.

The impact where it matters most in every region of the world.

As we increase our innovation speed and impact we are beginning to be recognized for breakthrough innovations as an example in April Ashland had a very successful presence at the world's largest global cosmetics show in Paris.

Please turn to slide 19.

New product innovations aren't important tenant of our profitable sustainable growth strategy.

By narrowing our focus to markets and applications, where we can have the largest impact we are solving challenges in niche areas, where our innovations really matter.

As a deliberate focused company, we know exactly where we fit and where we unlock the highest margins because we bring the greatest value to our customers.

This year, we will introduce a record number of innovations and we are reaping the benefits of our focus and speed to market.

Nearly 90% of our new innovations are natural natural derived biodegradable or sustainable and use.

By maintaining discipline in both project and portfolio management, we are increasing the number of new product introduction as well as their expected value impact.

Please turn to slide 20.

These challenges are reshaping our markets as we speak and our so our solution expertise and our responsible solvers problem program add real value.

Our new product introductions demonstrate just one of the ways. We're unlocking profitable growth. These innovations are also allowing us to create value for both our customers and for Ashland.

We appreciate the awards and recognition we have received as they reinforce that we are on the right path.

We see ESG as a business opportunity beyond doing the right thing.

Please turn to slide 21.

As we approach each of our priorities in a disciplined way, we recognize they're overlapping nature.

Under our new business model, we have empowered our organization have driven decision, making to those closest to the customer each business leader and the regional teams own their business and circumstances, but all share these disciplines leaders adopt their priorities.

<unk> stances that unlock profitable growth, while maintaining operating discipline.

Please turn to slide 23.

Looking to the future's never easing.

Doing it in this current environment is extremely challenging to put to put it mildly.

<unk> have not changed demand remains resilient customers still need to build rebuild inventories and COVID-19 reopening is having a favorable impact across many parts of the world.

Plants continue to run well and raw material availability has started to improve.

Our pricing actions have positioned us well relative to the past and current inflation pressures and we are ready to take further action is needed.

Although the supply chain reliability remains.

A challenge we have started to see some improvement on the trucking side.

The headwinds have changed from an IFF and impact to how much.

There is a Ukraine war, China has moved to Covid, lockdowns and inflation, especially energy driven inflation has increase and it is accelerating.

It's very difficult for us to forecast the direction and impact of the war in Ukraine, Covid lockdowns or inflation.

Please turn to slide 24.

We understand the key performance variables that are likely to impact our performance.

On the revenue side demand in our market is expected to remain resilient during our fiscal year, and we do not expect significant improvement and supply chain reliability.

As such our ability to supply.

We will most likely drive our revenue performance.

How well our plants run and our ability to rebuild safety stock to offset the low ocean freight liability.

On the profitability side inflation.

It's probably given driven by energy and bras broad based drivers issue is how much and when.

The biggest risk to our fiscal year performance will be fiscal year fourth quarter, because we will have less time to offset any cost inflation with pricing actions pricing.

Pricing.

Mix improvement and productivity will continue to drive our margin performance.

Please turn to slide 25.

Given all the dynamics have discussed based on the information we have and the actions. We've taken we remain confident in the financial outlook, we provided at the beginning of the fiscal year.

We continue to expect sales in the range of $2 two five to $2 35 billion, representing 9% of sales over the prior year at the midpoint.

We also continue to expect adjusted EBITDA in the range of $550 million to $570 million.

Based on known information today, our model puts us above the midpoint of that range for the full year.

However, similar to what we saw in the first half of fiscal year 2021, we recognize that there is still lot of uncertainty from the Ukraine War Covid.

Covid lockdowns in China inflation and shipping reliability.

Our outlook presumes that we do not see significant significant additional inflation in raw materials freight and energy as such dynamics would require additional pricing actions beyond those that are already planned for which we would need to recognize a lager.

Let me be clear as we did in 2020, when Covid emerged and uncertainty was high.

Based on external factors that we cannot control or forecast as this would only create more noise in our planning process.

As external developments become clear, we will maintain our current level of transparency.

We will communicate any changes in our outlook as appropriate.

<unk> is well positioned to have confidence in the company's business portfolio market focus global team and our plan and the actions that were taken action Ashland has demonstrated its resilience during the last two years and we are confident that we will maintain that resilience in 2022 and beyond.

Please turn to slide 27.

We concentrate on areas of rich opportunities to innovate and drive value for our customers, where innovations and expertise and one of our businesses can be leveraged across others.

In closing I want to thank the awesome solvers once again for their leadership and proactive ownership of their business in an uncertain environment.

We create our destiny as a global additives and ingredients company with exceptional businesses that have leadership positions in resilient high quality consumers driven markets I'm pleased by the resilience and execution demonstrated by our people and our businesses and look forward to the opportunities that lie ahead.

Thank you and operator, if we could move to Q&A.

Thank you as a reminder to ask a question you will need to press star one of your telephone.

Draw your question across the county.

Our first question comes from John Mcnulty with BMO capital markets. You May proceed with your question.

Yes, Thanks for taking my question and congratulations on some some really solid results. So I wanted to dig in a little bit into the into the life Sciences area. You had a heck of a jump in terms of overall profitability as well as sales, but but certainly the profits are kind of at record levels and I guess, just given how much noise theres been around the lumpiness of.

Logistics and that kind of thing like is this kind of a one off hey, we kind of.

Did kind of better than even even normal because we had a little bit of catch up or is this kind of a good run rate and if it is a good run rate here I guess, what's what's driving that.

The enhanced profitability, how should we be thinking about that.

I think as we said in the call.

The we have moved up more on price, especially starting at the end of last quarter too.

To recover a lot of the inflation that we've seen and the mix impact has been very favorable.

Quarter Pharma was was very strong we saw a lot of orders.

We ship around the world. So theres still the backlog is still there.

And the parts that were a little bit softer we're in the nutraceutical area, where we continue to have more of the manufacturing.

Labor availability issues impacting some of our ability to supply in the U S. So it was more of a mix impact, but as we look forward, we expect pharma to remain resilient.

And.

Hopefully, we'll see some pick up in the nutraceutical side for <unk>.

Back end of the year.

Got it got it that's helpful.

And then I guess just as the follow up question just around.

The innovation pipeline because it looks like it's pretty dynamic it does seem like the wheel is finally, starting to really turn here I guess can you. When you look at the five year revenue potential that you outlined can you help us to understand the magnitude of that can you give us either kind of a dollar value or is there a way to think about.

How you see the vitality index moving from kind of the current levels too.

That year, five kind of timeframe can you help us.

Kind of gauge that a little bit.

Because frankly because of the.

The cosmetic show in Paris. So we have had a lot of launches there those more and more public and some of the other businesses that we're working on things that we haven't been public yet. So we don't want to just start giving data on one business. So we're waiting to get more advanced in some of our launches.

But as you said I think the biggest focus that we've had is not just accelerating the launches that we have things in our pipeline and I think I've mentioned this in one of our prior calls.

Whatever it was in the pipeline bigger small, let's move them through so that we can launch them and really using the time that we spent in 2000.

'twenty, and especially 2021 and advancing the newer innovations that's what excites me that we're bringing out a lot of these newer products that are having higher impact and that are much more aligned with our sustainability strategy that they are coming through so these are much bigger value you can see in the graph the number of launches.

Is significantly higher but the value of them.

As a higher impact and that's what we're trying to do.

But I'd, rather wait to give a little bit more specifics once some of these things are public we have a lot of things that are IP protected that we're filing patents and stuff.

<unk>.

It'll take us a little bit more time, we're still.

In the earlier stages as we talked about in 2021.

Innovation takes time and you are just starting to see the early phases of that roll off. So if you look at 2023 2024, we expect those to continue to be very strong for us as we move forward, both in new product launches and increasing that impact level, and that's really where a lot of this portfolio management.

It's helping us really honing in on.

Projects that might be interesting, but they are not high impact versus where really we can move the needle in the long term.

Got it thanks for the color no that definitely helps fill in a lot of life.

Okay.

Thank you. Our next question comes from Chris Parkinson with Mizuho. You May proceed with your question.

Awesome. Thank you so Guillermo I understand you don't want to get too much into specifics.

But you have been launching over a period of time.

Large portfolio of naphtha base responsibly sourced products, a bunch of things in Realogy some of that was that in cards.

Yes.

Broadly top down where do you stand right here right now with the portfolio in personal care with pricing and end market demand from your customer base.

Simple question, what's your best degree of conviction on the three to 400 basis points of Subsegment outperformance.

So I think youre going to start seeing that that grow over time, I think right now.

There's two dynamics just managing the shorter term dynamics.

The dynamics of managing the inflation and mix obviously.

<unk> is improving as we go you're starting to see the growth of some of the newer areas like the <unk> contributions to having a bigger impact.

Similar to life Science I think in the last call, we mentioned lifetime personal care, we're a little bit slower on the pricing youre starting to see that come through so definitely there's clearly some improvement there, but I think the longer term, we feel very confident that we can start really driving some of these innovations most of these new innovations will come with that.

Value for our customers and all of these also greater opportunity to for us to differentiate our products and expand margins as we go I will say and just for all the businesses.

In the near term, especially when you're managing through these very high peaks of inflation, there is going to be some noise over and under and some of the margins and that's going to be an issue of the flow through of cost through the system in terms of accounting.

Pricing and taking actions based on where we see the ball in the future and not just how it's flowing through in our numbers. So we.

We want to make sure that we're maximizing both that short term performance.

But also getting that makes them that innovation to drive that longer term margin improvement.

Got it and just a real quick.

Corollary Mcnulty question, just turning back to lifetimes it very quickly.

<unk> always been a lot of drivers.

Of the existing portfolio, but if you just took a moment definitely parse this out for us in terms of what Youre seeing in the let's say the legacy <unk>.

Portfolio.

New therapeutic drug launches some of which to my knowledge for kind of delayed or kicked it from your customers during COVID-19 , which are now potentially bearing fruit and then also the outlook.

For <unk>, specifically Asia Central Asia, so on and so forth.

How are you thinking about the different moving parts within your life Sciences portfolio, and then perhaps a very quick comment on.

On M&A in Injectables. Thank you okay.

So we're we're looking still at robust resilient.

Our pharma segment, especially in the OSB I think.

There has been and I think we've mentioned in the past some impact.

Just funding.

If you look at some of the drugs that require government funding like H H drugs. As an example, they have been softer we're seeing some improvement there. Some of these drugs. For example are used in some of the Covid.

And in conjunction with some of the Covid drug score before the therapy. So we're seeing some increase there. So clearly we are seeing some improvement as things normalize and as some of the drugs that were in are used in an <unk>.

Some of the new therapies for Covid and other areas. So we will continue to see the segment growth I think it will be that that the model that we have is still this continuous steady growth.

That segment as we move forward and Injectables, we continue to make progress.

In terms of our.

Poly result, absorbable polymers, we had some good sales.

<unk> this quarter.

With some of the customers that are doing testing and trials or would that be some of their drug development and.

To get the momentum over the long term.

And we are continuing to work the <unk>.

M&A side.

The equation too.

Great color, that's all kind of its priority.

Okay.

Thank you. Our next question comes from Josh Spector with UBS you May proceed with your question.

Yeah, Hi, Thanks for taking my question.

I think we there's a lot of uncertainty at this point in time.

As we set our models.

Model again, some additional inflation and the timing for us to to get that that recovery.

Hum.

The lockdowns have been an impact.

Not sure how long they did a lot last in China.

And the worn Ukraine, it's not a big part of our total our direct portfolio, but we have to see what some of some of these impacts are and and.

They're going to be just linear and we're going to continue to grow. So we're factoring all of those those those issues in.

And we believe we believe theres going to be some surprises and we just need to factor them into our outlook.

Josh the other.

Two more things, but the one thing we know we're going to have is.

The large turnaround at our Lima, Ohio facility to mediate the BDO plant.

That will be most likely a $10 million to $12 million impact.

In Q3.

We do that about every three years and it's time to do it again.

The other the other piece of the equation is currently we've seen the euro compared with the weekend, which is which isn't drag on.

On our earnings as we convert euros to dollars.

So those.

Those will be the two key things.

Also add to the equation, so theres a bit of conservatism in the overall overall mix here, but there are some things that we know and there's a lot of things, but we don't.

Okay. No that's very helpful. I appreciate that and just.

What's your ability to hold onto some of that better mix and how do you weigh expanding capacity to meet some of the unmet demand maybe on the lower mix products versus maintaining a higher margin mix overall.

On the mix side, we're using the opportunity. This is a more constructive time I would say if we wanted to change that makes it any way.

This is allowing us to do it in a more constructive way.

The lease constructive ways.

Exiting businesses like we did in the low and.

This is allowing us to sort of manage through that process and hone in on the market segments that we really see that long term differ.

Differentiation and ability to grow.

So obviously.

Coding is very important to us construction.

Personal care life science, so, we're shifting that portfolio and upgrading.

The where we allocate our kilos of capacity.

Our key raw materials as we go.

And then in areas like.

The intermediates, where we're just trying to be smart about how we manage the short term opportunities and some of our merchant business is through the mix also where we can get the most value most.

Most of the business there is not BDO per se. It's other derivatives. So we can look at what what markets or what regions, we want to position those sales.

Okay. Thank you.

Yeah.

Your next question comes from David Begleiter with Deutsche Bank. You May proceed with your question.

Yes.

Your line is open David.

Hi, there I apologize for that good morning, I came out in the quarter, the selling price increases offset raw material costs.

Yes.

We offset raw material costs.

And also other other costs too.

<unk>.

So it definitely was.

Net positive.

The part that we've tried to do is get ahead of the curve I mean, the more delays you have in pricing.

Then the bigger that the actions need to be later on so moving early.

As one of the big learnings is.

The sooner you do it.

The lessons.

The increased needs to be in the greater the impact youre going to get the benefit of time.

Very good and just on the shipping and logistics issues.

Why do you think they'll get better and what was the impact if any in Q2 and what's your expectation of when you can have an impact in the back half of the year.

Like I said the trucking, we're starting to see some level of improvement.

There's still going to be depending on the region.

Some noise I assume with some of the new developments in Europe , you'll see a little bit more noise on the trucking side, there, but we have seen some some level of improvement.

I think throughout the year.

It's one that that should start to be see improvement and.

The impact is shorter term because youre talking about days and delays.

The unfortunate on the Ocean freight side. All indications is this is not going to improve that quickly.

Barring that.

Demand really drops across the world.

And opens up a lot of capacity most of the outlooks that we've seen is more towards the back end of 2023 and into 2024, because it's about capacity. It's about the port capacity is not just shipping capacity. So there's several dynamics in that area that'll take a little bit more time.

That's why for US, it's really building that inventory, although our inventories have gone up.

Our safety stocks at the other side are not where they need to be still so this is work that we're going to probably be doing throughout the entire year to catch to catch up and the balance is going to be producing too.

Full capacity, so it's either we're selling it or we're building inventories. So demand goes up it just puts more pressure on the inventory side of the equation.

Thank you.

Thank you. Our next question comes from Laurence Alexander with Jefferies. You May proceed with your question.

Good morning, guys. Thanks, So two quick ones on the negative sales trends reported for the Nutraceuticals and nutritional ingredients.

Product categories.

Given the amount of inflation, you're passing through if you backed back how kind of the underlying level of inflation when should those categories get back to positive year over year comps.

No.

A new.

Sorry go ahead.

And then I'll just answer that one.

Issue of supply I mean, we're passing the cost we can demand is very robust, it's really more issues about our ability to produce a lot of our plants are in the east coast.

So labor has been the bigger issue.

And we're working through that so it's really more not a demand or margin issue as much as it is about our our ability to supply and that's where we're putting a lot of our energy.

So probably more like within three to six months as opposed to 12 to 18 is that fair yeah. Yeah, Yeah, it's more about Austin, our ability, it's not a market issue.

And Laurence on the on the nutrition. Unlike the nutrition side, we have a lot of cellulosic stability of nutrition.

And that tends to be a lower margin segment for us and given that where we are.

We're sold out us as the global market.

Most of these products as part of our mix improvement strategy of the business as well take take that material move it to higher margin end markets. So you're going to see some pocket switches. There we're being we're being thoughtful about that can has to it has to create long term value as well as short term, but you'll also see some.

Some volume movements amongst the end markets.

As a result of where we are from a capacity perspective.

Okay, that's very helpful.

With the new product pipeline is that net of cannibalization or is that some tenants thats a gross number.

There's going to be growth I think.

Key priority is growth if you look across all all the businesses.

Natural natural derived sustainable profile, so mostly growth, but there are some areas that we're going to try to replace ourselves too.

Okay, great. Thank you.

Thank you. Our next question comes from Mike Sison with Wells Fargo. You May proceed with your question.

Hey, guys really nice quarter there.

Okay.

In terms of personal care, you guys talked about 16% organic growth.

Impressive just curious how much of that was volume and price.

I know you have some product rationalization there.

And does that volume growth improve as we get into the second half second half.

So so so we do see a lot of opportunities for volume growth.

And our business obviously, if you look at some of the Cellulosic. Some of these things we're managing so you might see growth as Kevin said in one segment and we're shifting things around and as we bring on Debottleneck and new capacity that will enable some growth, but if you look at personal care. There is a lot of other other technologies that are not.

Capacity limited so there is the opportunity for growth I would point out.

The showcase shogi.

Is performing extremely well one of the tenants is.

European based company it was global but a lot of the business based in Europe , we can help it.

Globalized, so driving global growth.

And that product line is going to be very very important for us that would be a net volume revenue growth by a functional were investing and putting capacity.

And China, and servicing and developing products in Asia for the Asian customers. So that will also be opportunities for growth.

Some of these.

So.

Our like mattress fix is really targeted at replacing carbon Mers, which is one of the big categories probably.

400, plus million dollar market just in the personal care space.

That a lot of customers want to replace them with more and more sustainable.

Solutions. So there's a lot of a lot of opportunities for both volume growth.

And also we will continue to drive that mix improvement and other parts of our portfolio.

Mike.

Looking at looking at personal care for the quarter about two thirds of that 16%.

As in the form of mix and volume.

And there is some at least some negative currency in that as well so on a like for like basis, it would actually be better than that.

Got it and then just one quick follow up in terms of your outlook.

EBITDA being in the midpoint or higher or above the midpoint.

It's the case, but are all of the segments that are contributing to the better performance.

For the second half of the year.

Yes, so all businesses are contributing.

And in terms of.

The margin.

And recovery.

And mix improvements so we should see that I do think.

As I've mentioned the timing of flow throughs.

Youre going to see some normalization.

The issue when you move on pricing versus when the costs come in or when it reflects so theres going to be some some adjustments.

But all of them are improving and we're moving into our strategic direction of improving our margins, but Kevin I don't know if you want to add anything else.

Yeah, just just again another reminder.

The intermediates business will be negatively impacted primarily because the lama turnaround.

And we're also seeing cost inflation there that's rolling through so those results will be more muted I think.

The good news there is as you look at the three core.

Segments aside from that there.

We're gonna more than pick up the slack.

Yes.

Thank you. Our next question comes from Mike Harrison with Seaport can May proceed with your question.

Hi, good morning.

Hey, Mike.

In the past and your personal care business, when you've had some macro declines, particularly in emerging markets you have seen some trading down to where cost personal care products, particularly hair care.

Think that you've recently taken some steps to improve your position, but as we start to see inflation impacting consumers and maybe some changes in consumer behavior, how much of an impact could trading down to lower end products have on your personal care volumes.

I don't think that that has been as big of a driver I think it's been more just where we positioned the new products, it's more of that sustainability push.

As as.

What's happening right now.

I think youll continue to see it.

So there were some delays in the portfolio stays much more balanced as it has over the last two years. So.

I don't think theres going to be a negative a negative.

Impact on moving to lower.

The lower costs that would require a significantly formulation work.

From customers that they just want to do it.

Right now.

Alright, and then on the coatings side, you mentioned the normalization that's going on at DIY and more of a shift back to the pro contractor market. One of the large coatings companies has kind of referenced that even within the contract or market their spending.

A positive mix shift to higher quality paint, presumably that's using more of your additives, but can you just talk about.

Kind of what Youre seeing in terms of the mix in coatings I guess normally we would think that DIY is is positive for you guys, but is it turning out that youre seeing some positive mix with this contract are trend right now yes.

Yes.

Right now, it's more what's driving the demand.

We're very well positioned both with our Cellulosic Hec's also with our Aqua flow, we see a lot of very good performance, there, but Mike as frankly, as we said everything is at capacity. So if theres. Some changes we don't necessarily see it like it's a big driver we're trying to produce as much.

As we can and supply as much as we can with our customers I think the move to higher quality paint is obviously very favorable for us.

I also think it's also a good sustainability move.

Move.

Long higher quality means longer lasting which means from a cycle. It's just better better all around in terms of cost performance and environmental performance for <unk> for the industry and for for the World. So I think theres. All those are all mega trends that are playing well for us.

And some of the newer technologies that we're introducing.

Alright, and just a quick one for Kevin compared to the 57 million share.

Share count in this quarter, what share count should we be modeling next quarter.

Okay.

It'll be lower [laughter].

[laughter], it'll it'll be about $56 million.

With 56, alright, thanks, very much yeah sure.

Thank you. Our next question comes from John Mcnulty with BMO Capital markets. You May proceed with your questions. Yes, sorry, one last follow up just on the on the capital allocation side. So.

<unk> had a pretty balanced approach in terms of M&A and buybacks admittedly buybacks at this last quarter were bigger than what we were expecting them to be I guess should we be thinking about kind of a more balanced pace going forward and then kind of maybe what we've seen over the last quarter or maybe even dialing back the buybacks or do you still feel.

Hey, look given that you're undervalued your own stock in a lot of cases, maybe the best place to be putting capital I guess, how should we be thinking about that.

Let me make some comments and then.

Kevin I'll, let you comment more balance sheet, and where we feel we need to be but right. Now I think we've taken actions appropriate actions in terms of buybacks too.

<unk> our value.

The company and in terms of.

Where we believe we should be in the long term value.

However, I think as we move forward, we do want to make sure. The growth is the bigger driver and that we maintain that capability to drive quality growth. Both the Capex I think we have enough capital, but we do want to do.

Our high value strategic M&A.

Aligned with our focus on.

<unk> pharmaceuticals, with Injectables is a big big focus area personal care and coatings, so that will be a priority going forward to get to where we want to get buybacks helped make a point.

In support of our shareholders, but but really it's about that growth and continuing to shift our portfolio to those higher higher end markets and technologies that we want to make that our top priority.

Okay.

Thanks.

Yeah, the only thing I would add is.

Balance sheets in pristine condition at this point and we've got a lot of flexibility to do a lot of things.

At just over.

One times net leverage.

We've got we've got a lot of capacity.

Do you need to do multiple things and I think youre going to continue to see us to do a mix I mean with <unk>.

Our view that.

The current share price. The company is very undervalued right now so bancshares is still an opportunity, but as Guillermo said.

To really realize the value creation, that's possible. We've got to continue to be focused on organic growth. So expanding capacity to do that as well as these inorganic opportunities around high value, but disciplined M&A.

Two to continue to continue to.

To meet our agenda as we've laid it out and as we said back in November .

B a mix, we we plan to do all three of those things over over the course of time, we've done that before and they are not mutually exclusive activities and we were Fortunately in just a really really nice position to be able to do those things right now.

Got it I appreciate the thoughts.

Yeah.

Okay.

Thank you and I'm not showing any further questions. At this time I would now like to turn the call back over to Guillermo Novo for any further remarks, okay, well wanted to thank everybody for your participation and interest.

And I think also the entire Ashland team for great performance in.

Quarter.

And we look forward to.

Connecting with you in the coming weeks and look forward to our next call. So thank you very much everyone.

Yeah.

Q2 2022 Ashland Global Holdings Inc Earnings Call

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