Q1 2023 Element Solutions Inc Earnings Call
Speaker 1: The.
Speaker 2: 2021-2023 Financial Results Conference Call. Today's call is being recorded, and all lines have been placed on mute to prevent any background noise.
Speaker 2: After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press the star followed by the number 1 on your telephone keypad.
Speaker 2: If you would like to withdraw your question, you must press star 1 again.
Speaker 2: Thank you. I will now turn the call over to a Verune Go corn, Senior Director of Strategy and Finance. Please go ahead.
Speaker 3: Good morning and thank you for participating in our first quarter 2023 earnings conference call. Joining me are our Executive Chairman, Sir Martin Franklin, CEO Ben Glicklitch, and CFO Kerry Dorman. In accordance with Regulation FD or fair disclosure, we are webcasting this conference call. Any redistribution, retransmission, or rebroadcast of this call in any form without the express written consent of element solutions is strictly prohibited.
Speaker 3: events that are subject to risks and uncertainties. These refer to our earnings release, supplemental slides, and most recent SEC filings for discussion of material risk factors that could cause actual results to differ from our expectations and predictions.
Speaker 3: These materials can be found on the company's website at www.Elementsolutionsinc.com in the investors section under news and events.
Speaker 3: Please refer to the earnings release and supplemental slides for definitions and reconciliation of these non-GAAP measures to comparable GAAP financial metrics.
Speaker 3: It is now my pleasure to introduce Element Solutions CEO Ben Glicklage. Thank you Varun and good morning everybody. Thank you for joining.
Speaker 4: In the first quarter, Element Solutions delivered on its financial commitments.
Speaker 4: We grew a just a debit doth sequentially and reported results in line with our guidance, despite continued solsteness in electronics and markets and Asian economy more broadly.
Speaker 4: For folio diversification and cost containment, softened the impact of decline in key and markets like mobile. Our organic sales performance reflects the consumer electronics malaise that began in the middle of last year and has driven broad-based volume decline to cross the industry.
Speaker 4: Organic sales were down 7% over the first quarter of 2022.
Speaker 4: Notably, that quarter was our largest for sales and EBITDA since we launched ESI.
Speaker 4: This quarter's sales results include an 11% decline in your electronic segment that was partially offset by 2% organic growth in industrial and specialty.
Speaker 4: The INS segment was buoyed by resilience in western automotive markets and a solid recovery in offshore energy production.
Speaker 4: Demand in the Americas and Europe , while soft, is playing out largely as we expected entering the year. However, recovery in China post-COVID reopening and Lunar New Year has been slower than expected.
Speaker 4: When demand will recover in Asia and in electronics markets remain uncertain, there are good reasons for second-half optimism.
Speaker 4: Semiconductor customers expect increased utilization rates in late Q2 and into Q3, and related sectors should follow.
Speaker 4: While only a portion of our electronic sales go into front-end-of-line semiconductors, they are a leading indicator.
Speaker 4: There were bright spots in Q1. Our power electronics offerings continue to perform very well as EV production rates accelerate and customer traction for certain new electronics and industrial applications bodes well for outside growth when markets recover. Our energy solutions business is also growing ahead of our expectations. Home and technical execution has been solid.
Speaker 4: On the cause side, we're beginning to benefit from a normalization in logistics prices and deflation in certain raw materials, driving a sequential improvement in gross margins that we expect to continue to the remainder of the year.
Speaker 4: We're also enforcing tighter control on discretionary spending and driving process efficiencies through our supply chain and in GNA.
Speaker 4: This is not coming at the cost of long-term growth. We're still investing in strategic focus areas and maintaining the resources needed to support the market recovery when it arrives. Given the variable cost nature of our business, we have additional levers to reduce costs in the second half should expected demand not fully materialize.
Speaker 4: Fortunately, our teams remain focused on delivering exceptional products and services.
Speaker 4: Our customers and technology support attractive markets such as electric vehicles, 5G-enabled electronics, and sustainable chemistry solutions – markets that will grow. We've also continued to deploy our capital effectively into high-returning investments that we believe will continue to compound per share earnings.
Speaker 4: periods of low demand and market uncertainty often generate unique opportunity.
Speaker 4: than when we entered it.
Speaker 4: Carrie will now take you through our first quarter business results in more detail.
Speaker 4: order of business results in more detail. Thank you, Mary.
Speaker 4: Thanks, Ben. Good morning, everyone.
Speaker 4: and profitability reflects a tough comparison against last year's record sales and profit quarter.
Speaker 4: In Q1 2022, carryover strength in the high-end smart home supply chain contributed significant high-margin sales. SEASON 2
Speaker 4: So, the same markets experience substantially reduced demand in the first quarter.
Speaker 4: of 2023, driving 11% organic sales decline in our electronics business.
Speaker 4: Our net sales and adjusted EVA were also both impacted by a strengthening US dollar by roughly four percentage points. Our industrial and specialty segment grew sales organically two percent.
Speaker 4: primarily due to improved activities in offshore energy business.
Speaker 4: new customer ramp-up in graphics, which offset weakness in our industrial surface treatment business in China.
Speaker 4: Our first quarter adjusted EBITDA of $112 million was 4% higher sequentially.
Speaker 4: as gross margins benefited from improving raw material costs. In constant currency terms, adjusted EBITDA margin declined to 150 basis points year over year.
Speaker 4: Electronic segment adjusted unit on margin was negatively impacted by volume declines, and higher margin circuitry and segmenting after application.
Speaker 4: partially offset by reduced pass-through metals prices. All seven margins were negatively impacted by mix.
Speaker 4: Adjustity of the down margins improves sequentially 70 basis points from Q4 2022, reflecting the easing headwinds from higher logistics that we experienced through much of last year, as well as non-metal raw materials that were modestly deflationary.
Speaker 4: Significantly lower prices on pass-through metals such as tin and filter, or a slight tailwind margins relative to Q1 2022.
Speaker 4: including the impact of the $83 million of pass-through metal sales in our Assembly Solutions payment.
Speaker 4: Our judgment even on margin would have been 23% in the first order.
Speaker 4: On slide four, we share additional detail on the drivers of organic net sale growth in our two segments.
Speaker 4: In electronics, mobile phone and consumer electronics demand had the most material impact.
Speaker 4: Our automotive electronics business remains resilient, particularly for electric vehicles.
Speaker 4: In the first quarter, our electronics continued to grow nicely as production of high-end electric vehicles accelerated. However, overall semiconductor solutions declined 19% organically, reflecting reduced utilization levels at semiconductor fabs.
Speaker 4: Assembly declined only 5 percent as it is less weighted towards mobile and consumer electronics.
Speaker 4: Circuitry solutions declined 17% organically, as persistent smartphone weakness continued from the end of last year.
Speaker 4: Customers across the mobile supply chain saw immediately lower production volumes, while other electronics hardware production also declined.
Speaker 4: Additionally, we are comparing against a period of particularly strong performance in cloud computing and data storage that benefited our memory disk business early in 2022.
Speaker 4: We expect demand from those smartphone suppliers and memory disk customers to improve in the second half of 23. For the first quarter, organic net sales and industrial and specialty increased two percent year over year.
Speaker 4: Industrial pollution declined 1% organically as demand in the European construction and industrial market slowed from the strong levels we saw a year ago. And automotive production in China remains strong. Overall, our automotive business performed in line with global auto production in the first quarter, which was resilient in the West, but soft in China. 3rd party estimates of China auto production recovery.
Speaker 4: have been pushed out and inform a more cautious view on sequential acceleration in this business in the second quarter.
Speaker 4: Graphic solution sales increased organically by 9%, reflecting a rampant new business and writing, which is only partially off that inflation thus far.
Speaker 4: Energy solutions for the bright spot.
Speaker 4: The sales growing 25% organically in the quarter as production and drilling activity that's rebounded We expect continued growth for this business throughout the year
Speaker 4: 5-5 addresses cash flow in the balance sheet. We generated 45 million of pre-cash flow in the first order, including a $13 million investment to working capital.
Speaker 4: which reflect a seasonal inventory bill.
Speaker 4: This quarter, we also made our $16 million semiannual cash interest payment.
Speaker 4: our outstanding figure notes.
Speaker 4: CapEx in the quarter was 9 million, which is below the annual runway we expect for this year.
Speaker 4: This number should ramp up certain growth projects and integration initiatives to get off the ground.
Speaker 4: Turning to the balance sheet, our net leverage ratio at the end of the quarter was 3.3 times, a slight increase from the end of 2022.
Speaker 4: In March, we opportunistically extended its maturity date of $360 million, or roughly half of our interest rate and cross currency swaps that were previously set to mature in January of 2024 to January of 2026.
Speaker 4: We expect this will increase cash interest by roughly $5 million this year, but these actions help mitigate future interest rate risks.
Speaker 4: Swap maturities on our term owner now split evenly over the next three years.
Speaker 4: And our capital structure is 100% fixed rate until 2024 and more than 80% fixed rate until 2025. We have no debt maturities until 2026 and our liquidity position remains strong. And with that, I will turn it back to Ben.
Speaker 4: Thanks, Gary. While the business in Europe and the Americas has been resilient, we exited the first quarter in a weaker demand environment and was generally anticipated due to Asian and electronics markets.
Speaker 4: From what we've seen to date, we are reluctant to forecast a steep sequential improvement in our end markets in the second quarter.
Speaker 4: We expect adjusted EBITDA to be approximately $120 million.
Speaker 4: This sequential improvement assumes a benefit for more selling days and modest sequential gross margin improvement due to ongoing pricing activity, commercial execution, and raw material population.
Speaker 4: Our conversations with customers and suppliers still support our expectation of a demand inflection in the second half of the year.
Speaker 4: We'll be growing off the lower baseline, which translates to the low end of our prior $510 to $530 million fully year 2023 guidance range.
Speaker 4: We still expect to generate roughly $275 million dollars free cash flow for the full year. Our ability to reduce operating expense and preserve profitability, as we've demonstrated in prior periods of market weakness remains.
Speaker 4: However, you should not expect us to present a significant restructuring program.
Speaker 4: Our primary costs are our people and they are the key to our moat and the engine for our growth. We've invested in a culture, capability and team that are resilient in down markets and have positioned the company to benefit disproportionately from the long term growth drivers in our markets.
Speaker 4: We're conscious and considerate of our spending in all market environments, and this ongoing air pocketed demand does not change how we view the long term trajectory of our business.
Speaker 4: We're pleased with how the team is executing in this environment and its ability to focus on key breakthrough strategic objectives, supporting customers, and growing our sales pipeline to take advantage of end-market acceleration without losing cost discipline in the short term.
Speaker 4: You should expect that to continue. To wrap up, I'd like to thank all of our stakeholders for their continued support, and in particular, our talented and dedicated people around the world.
Speaker 4: With that operator, please open the line for questions.
Speaker 2: At this time, I would like to remind everyone, if you would like to ask a question, please press star 1 on your telephone keypad.
Speaker 2: We ask that you limit yourself to one question and one follow-up.
Speaker 2: We will pause for just a moment to compile the Q&A roster.
Speaker 2: Your first question comes from the line of Josh Spector with UBS. Your line is open.
Speaker 4: Yeah, hey guys, thanks for taking my question. I just wanted to ask about kind of how you're thinking about the cadence here through the rest of the year. We talked about levers that could help with cost in the second half.
Speaker 5: You lowered your ebidac expectations, but didn't lower your range.
Speaker 5: So if we get a weaker recovery, do you still think you can get to the low end of your range with the levers that you have or that be a different scenario on a way for traffic?
Speaker 4: Thanks for the question, Josh. Yeah, so as we guided in the first quarter, we thought the cadence half over half would be something like $240 million of EBITDA in the first half and $280 million in the second half.
Speaker 4: Thanks for the question, Josh. Yeah, so as we guided in the first quarter, we thought the cadence half over half would be something like $240 million of EBITDA in the first half and $280 million in the second half.
Speaker 4: At the midpoint, obviously we delivered on our 1st quarter expectation, but our expectations for the 2nd quarter are dampened by demand. We are communicating today. That the ramp we expected in the 2nd half is increasingly likely relative to what we thought a couple of.
Speaker 4: in case that ramp doesn't materialize or the magnitude of the ramp is inadequate to deliver on that guidance. So yeah, we do believe we have ample cost capacity entering the second half to deliver on our guide.
Speaker 5: Okay, no, I appreciate that. And I wanted to ask a second, this might be too early to give a deep comment, but there's some headlines circulating around Germany and basically electronics or semi-chemicals limitations on shipments into China. Do you have any way to think about no risk?
Speaker 5: there for you or your sales flow in that direction. Yeah, it's been a dynamic regulatory environment for high end electronics going on a couple of years now and we have been nimble to ensure compliance.
Speaker 4: I'd say that our value at the very leading edge in semiconductor is less than our value into printed circuit boards or assembly materials and the Chinese local market for leading edge semiconductor is smaller than in Taiwan or Korea or North America. We don't see a
Speaker 5: significant impact should...
Speaker 4: regulatory frameworks change in the TEMIC and Dr. Space. Our small portion of front end of line TEMIC and Dr. Sales is a ready-man subject to these sorts of excels controls. So it's not a big need-a-mover based on what we can see today, but of course that's the dynamic situation. Okay, thanks Ben. Your next question comes from the line of John Roberts with Credit Swift. Girl on it's open.
Speaker 3: Great, thank you. SG&A in the quarter was only down a few percent from a year ago in spite of the much weaker start to the year. I assume you're accruing your compensation in the first quarter to that full year, even to our target that's there. And if it doesn't materialize in the back year in terms of recovery, you would just reverse some of those accruals later in the year.
Speaker 4: very thoughtful about where we're adding costs, but we're not actively reducing expense at the moment. We're always considerate of our spend, but there's plenty of opportunity, I would say, entering the second half for us to reduce costs to deliver on our financial commitments should demand not materialize. So we'redieking of number of pipettes in this case I think by putting elements in there
Speaker 3: And then on slide four, the much lower growth in the assembly business, how different is the China immobile exposure for assembly relative to the circuitry and semiconductor and markets?
Speaker 4: Yeah, the assembly business was outperformed, the circuitry and semi-businesses in the first quarter because it's more broadly exposed to electronics and automotive than the circuitry and semiconductor businesses were skewed towards the high end. And we saw that in the fourth quarter as well.
Speaker 4: So the assembly business has significantly outperformed higher end electronics markets because of its mix, bigger presence in North America, wading into general automotive, and that's a trend that we would expect to continue insofar as there's continued weakness in mobile markets, for example. In Common We Stay
Speaker 2: Thank you. Your next question comes from the line of Kieran DeBrun with Mizzouho Securities. Your line is open.
Speaker 6: Hey, good morning. I was wondering just in terms of semiconductor and circuitry if you can dial in a little bit more on how things have changed in the first quarter versus where your expectations were in 4Q. I think we've had a few announcements from some of the big semiconductor players in terms of how they're planning on running some of their semiconductors and the fabulization throughout the beginning of the year and into the back half of the year as well as some of the hardware refinancing that were Welch all around them.
Speaker 6: some revisions in terms of expectations for mobile handsets in the back after the year. So, you know, in the context of some of the industry commentary, if you can just provide color of how your expectations have changed or have evolved since the focus 4 key, that
Speaker 4: Absolutely. So the circuitry and semi-business is skewed towards higher end electronics, mobile devices being a core end market there. Handsets were down nearly 20% year over year in the first quarter, which wasn't far from what folks would have expected entering the year. What's changed is the timing of the ramp.
Speaker 4: in the high end. So entering the year, I think there was some talk of a ramp in the second quarter. What we've seen is that we didn't see a strong recovery in China coming out of Lunar New Year post-COVID lockdown. And the tone is...
Speaker 4: of a ramp late in the second quarter, early third quarter. But we have more reference points today than we did a couple months ago supporting that assertion. So we've heard mobile OEMs talking about production rates ramping in July . We've heard semiconductor fabricators talking about.
Speaker 4: fabulization, troughing in the second quarter and beginning to recover late in the second quarter and into Q3. And so, you know, we believe that a recovery in these markets is increasingly likely. And that's the basis for our look forward. And so what's changed, I would say, is the second quarter.
Speaker 4: is softer than we would have thought a few months ago, and the back half ramp is more likely.
Speaker 6: Great. And then maybe just a quick follow-up on cash flows. You still have a pretty strong outlook for the year. You have a pretty decent amount of cash on hand. So how should we think about maybe capital deployment priorities as we go through the remainder of the year?
Speaker 4: Yeah, so the hallmark of this business is stable margins and strong cash flow in all environments and our guide reflects that dynamic. So we're going to generate in around $275 million of free cash flow this year. We have cash on hand. I would say that the opportunity cost of that cash and the actual cost of our capital is higher today than it's been.
Speaker 4: And so we're being very measured with regard to capital deployment. We do believe that you can get unique opportunities in markets like the one we're in right now. And we're certainly looking for those, but we're going to be very prudent.
Speaker 2: Great, thank you. Your next question comes from the line of Angel Castillo with Morgan Stanley . Your line is open. Your line is open.
Speaker 7: Hello, thanks for taking my question. This is actually Stefan Diaz, sitting in for Angel.
Speaker 7: I believe last quarter your guidance was predicated on handset volumes being flat for the full year. I was just wondering what's embedded in your guide now. Yes, so end market assumptions or end market.
Speaker 4: gross expectation has increased. So modest changes, I would say, but nothing dramatic and nothing that would change our full year.
Speaker 4: outlook other than what we've sort of realized in the first quarter and expect in the second quarter.
Speaker 7: And then would you be able to parse out price versus volume embedded in that organic growth number for each segment? Yeah.
Speaker 4: For each segment, wow. So we haven't disclosed that in the past. I would say that in the first half we're obviously seeing volume down, price improvement year over year. And in the second half.
Speaker 4: we expect to retain the benefit of the price and see volumes improve pretty dramatically because the second half of 2022 is very soft.
Speaker 2: Great. Thanks for the call-in. Your next question comes from the line of Steve Byrne with Bank of America. Your line is open. Your line is open.
Speaker 7: Hi, you're welcome off and on Christie's burn. My first question is, which of the three electronic businesses are seeing signs of higher customer operating rates and could you also kind of describe the operating rates by region for the industrial business?
Speaker 4: Sure. So, you know, the assembly business was down much less than the higher-end circuitry and semiconductor businesses in the first quarter. And so you're seeing, you know, greater volume stability in that business. We would expect that to continue into the second quarter.
Speaker 4: And the ramp that we're anticipating in the second half will benefit the circuitry and semiconductor businesses disproportionately. Within the industrial and specialty segment, the offshore business has been a real bright spot for us, where drilling activity has ramped significantly and we're seeing meaningful organic growth in that business, which we expect to persist through the year.
Speaker 4: In the industrial solutions vertical of the INS segment, we're seeing a much stronger performance in the West relative to Asia. The Asia business was down materially in the first quarter, whereas Europe and North America have been quite resilient. Dim seconds spoke to aaro.
Speaker 8: Inditionally. It depends on your
Speaker 4: Yeah, look, we've been driving a thorough, detailed strategy development and implementation program here for a couple of years, and we're seeing real traction at the customer level in interesting new market adjacencies with new technologies. That customer traction is great. It's hard to see that come through the P&L in a weak demand environment like the one we're in, but it's what gives us conviction that we can outperform our markets as they ramp. We are entering deeper profit pools with faster growth rates, and we have a lot of confidence that we're going to be successful there.
Speaker 7: Thank you. Your next question comes from the line of John Tanwontang with CJS Securities. Your line is open. Hi. Good morning. Thank you for taking my questions. Ben, are you explicitly thinking of a broader recession or maybe a soft landing in your forecasting? Either late this year or entering 24 and...
Speaker 4: the mobile market is off.
Speaker 4: 20%, as I said, year over year in the first quarter, it was down in the double digits in the full year of 2022. The automotive market, while recovering, is still very far from peak production rates. And the tone from industry participants and the OEMs in our markets is...
Speaker 4: for a ramp in the second half, fully aware of the potential risks in the global economy entering the second half. And so certainly we're subject to broader macro trends. We have been over the past 18 months. That doesn't undermine our confidence in the second half.
Speaker 4: ramp.
Speaker 4: As we said earlier, that second FRAMP is increasingly likely today relative to where we were a few months ago. And should it not materialize, we have levers at our disposal to continue to deliver on our commitments. Okay, great. I don't know if you commented on this earlier, but how should we be thinking of EPS at the low end of the EBITDA range?
Speaker 7: Given the increase in expense from the updated swaps and then are there any other quick takes we should be thinking about just given You know whatever you can do on the capital allocation side.
Speaker 4: Yeah, so we adjusted our EPS guide, if you compare our slide today to the initial slide at our Q4 earnings, down to reflect the lower range. There is about two pennies of capital allocation to get to that 140 in our guide.
Speaker 2: Got it. Thank you. Our next question comes from the line of Chris Kaps with Loop Capital Market.
Speaker 2: Your line is open.
Speaker 7: Yeah, good morning. I had a question tied to the juxtaposition of the intriguing secular growth drivers of your end markets versus the cyclical down draft that's being witnessed in units for so many electronic devices currently. And so as you were coming through the pandemic and even maybe as recently as last year there was a...
Speaker 3: a strong quick cadence of quotation activity for new PCB lines. You guys were winning a disproportionate number of those lines, particularly for the advanced or more complex devices. So I'm wondering, how should we think about those wins now? Have those lines come on helping buttress your demand trends versus the broader market, and they're just being run at low utilization rates, or have that capacity to completely defer to postpone given this?
Speaker 3: macro backdrop and so how should we think about the latent demand there for your business?
Speaker 4: That's a great question, Chris. So last year and the year before we were winning more business than we had in prior years, and that actually continues into the first quarter of 2023. There were delays in some of those lines coming on because of supply chain issues and part shortages.
Speaker 4: And some of those lines were delayed because of demand issues, but we haven't seen significant capacity come out of the supply chain in the printed circuit board market. And as has been well reported, semiconductor fabs are running at lower utilization, but you're not seeing capacity come out of that industry either. So as things ramp, we should see the benefit of those new wins. We should see utilization rates increase.
Speaker 4: some of those new lines come into operation and strong pull through and flow through of earnings for our businesses. Again, that's what gives us conviction and confidence that we can outperform our end markets and benefit disproportionately from the recovery in our markets.
Speaker 3: Got it. That's helpful. And then, um, so to our TMT team at Loop Capital, based on some proprietary analysis, pretty, you know, some specific reasons for optimism around the, the, the Apple I-15, um, variant specifically. And just curious how you're thinking about that in terms of your enthusiasm and.
Speaker 3: visibility you may have in terms of content per unit or the timing of ramp expectations. How important a piece of your narrative about the second half ramp narrative is that one particular variant? Appreciate it. Thank you. Yeah, no, thanks, Chris. Without speaking to any specific OEMs,
Speaker 4: you know, our business does skew towards the non-local Chinese smartphone OEMs. And so, you know, when we think about the ramp in smartphone production, you know, those are the folks that we would be more levered to. We do have more content per unit on each incrementally more sophisticated device.
Speaker 4: which should drive outperformance relative to unit growth. And history would suggest that after a less than stellar platform launch, you see a much stronger one in the following year. We've seen that over the past several years.
Speaker 4: All those things put together, again, build conviction and confidence that we'll see a strong ramp in the back half here. Thanks for the color.
Speaker 4: and build conviction confidence that we'll see a strong ramp in the back half here. Thanks for the color.
Speaker 2: As a reminder, if you would like to ask a question, please pull star 1 on your telephone keypad now.
Speaker 2: Your next question comes from the line of David Silver with C.L. King. Your line is open.
Speaker 7: Yeah, hi, good morning. Thank you. I had a question maybe focused on your outlook for the automotive sector in particular. So that's an end market that touches on both segments and a number of product lines.
Speaker 7: quote the eloquent words of one of my predecessors here, you know, there's secular growth issues juxtaposed with some cyclical variability. But a couple of things, but if you could just give us your sense of how your businesses are progressing as the auto industry goes through its transition to
Speaker 7: greater EV penetration and whether you think that the content gains or the contract wins that you envisioned are kind of materializing on schedule. And then more broadly, what kind of improvement or trend do you have in the second half of 2023 versus what you're experiencing in the first half?
Speaker 4: Thank you. Thanks for the question. The automotive market is the key market for us. It's been one that's been soft for an extended period of time. We're starting to see it recover here. And then there is the secular trend of electric vehicles. So it's a pretty compound question. So for starters, the automotive market should be – –
Speaker 4: a modest growth driver for us in 2023 over the course of the full year. Over time, it should be a market that we can outperform units by a reasonably wide margin because of content gains and because of the shift to electric vehicles where we have more value.
Speaker 4: We've talked a lot about our exceptional offering into power electronics markets, and that's been a bright spot across the portfolio in the first quarter where we're growing really nicely supporting high-end electric vehicles where production rates continue to grow. But even in some of what you could call our more legacy businesses.
Speaker 4: there's more electronics, there's more power electronics, and there's even opportunities in the industrial solutions business for growth as we see that transition progress. That's something we're very excited about.
Speaker 4: There's more power electronics and there's even opportunities in the industrial solutions business for growth as we see that transition progress. That's something we're very excited about.
Speaker 7: I highlight where the discretionary portion of that CAPEX where the incremental spending or discretionary amounts are being directed. Thank you.
Speaker 4: David, this is Kerry. Thanks for the question. So I think I'll start with the last point around discretionary versus I guess I'll call maintenance. So I think the most important thing to note is that the maintenance capex spend in this business is really unchanged over the last couple of years. You know, call it and 15Million dollars annually. This 70Million that we got to this year.
Speaker 4: You know, we got into something higher than our run rate last year as well. Our historical hours last year as well I would expect that after this year, we're back, you know, well under 2% of sales call it 50 million plus or minus The things we're doing this year are making CapEx investments to support those strategic initiatives that Ben had talked about.
Speaker 4: a few questions ago. So we're making an investment in China to support power electronics. We're making an investment in India. And a few other markets where we're seeing long term demand from customers to be present, both for production and for research and application-less. So again, I expected to come back down.
Speaker 4: closer to call it 50, assuming we can spend everything this year. And one of the challenges has been actually getting projects done because of availability of materials. That's starting to improve, but we're not through that yet. That's great. Thank you very much. Appreciate it. There are no further questions at this time. I will now turn to...
Speaker 1: disconnect.