Q2 2023 Stepan Company Earnings Call
Okay.
Good day, and thank you for standing by and welcome to the Q2 2023 Stepan Company earnings Conference call. At this time all participants are in a listen only mode. After the speaker's presentation there'll be a question and answer session to ask a question. During this session you will need to press star one.
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Please be advised that today's conference is being recorded.
I'd like to introduce your host for today's call Lewis Rahho CFO . Please go ahead.
Good morning, and thank you for joining Stepan Companys second quarter, 2010, and 23 financial review.
<unk>. We begin please note that information this conference call contains forward looking statements.
What's driving the all historical facts the.
Statements involve risk and uncertainties that could cause actual results to differ materially, including but not limited prospects for our floating operations global and regional economic conditions and factors detailed in our Securities and Exchange Commission filings.
Whether you're joining us online or over the phone. We encourage you to review the Investor Slide presentation, which we have made available at www Stepan com.
All the best store section of our website.
We make these slides available at approximately the same time as when the earnings release is issued.
And we hope that you find information and perspectives helpful.
That I would like to turn the call over to Mr. Scott betting, our president and Chief Executive Officer.
Good morning, and thank you for joining us today to discuss our second quarter results I plan to share highlights from our second quarter performance I will also share updates on our key strategic priorities, while Luis will provide additional details on our financial results.
The company reported second quarter, adjusted net income of $12 $1 million.
Earnings were significantly impacted by a 19% decline in sales volume versus the all time record prior year second quarter due to continued demand softness across most of our markets and continued inventory destocking in certain market channels.
In the second quarter margins at our surfactant and polymer segments were only slightly lower versus prior year as a result of less favorable mix, while unit margins for specialty products were significantly lower versus prior year due to high cost inventory and pricing pressure.
Gradual volume improvement throughout the quarter within our rigid polyol business was more than offset by destocking activity within our agricultural business.
Cash expenses were slightly lower versus prior year due to proactive head count and discretionary expense controls implemented earlier in the year and lower accruals for incentive based compensation.
For the quarter, adjusted EBITDA was $45 $8 million versus $96 $7 million in the prior year quarter, primarily driven by the decline in sales volume.
Adjusted EBIT in the second quarter of 2023 was slightly lower than the first quarter of 2023.
Second quarter surfactant operating income was $15 $1 million versus $48 $2 million in the prior year quarter, primarily due to a 15% decline in global sales volume.
In addition unit margins were slightly lower due to less favorable product mix high cost inventory carryover and increased competitive pricing pressure in Latin America.
Polymer operating income was $16 $3 million, a decrease of $17 $6 billion versus the prior year.
This decrease was primarily due to a 29% decline in global sales volume, including a 28% volume decline in rigid polyol.
Specialty product operating income was $3 8 million versus $9 $9 million in the prior year.
This decrease was primarily attributable to lower unit margins and sales volume within the medium chain triglycerides product line versus a record prior year.
During the second quarter of 2023, the company paid $8 $2 million in dividends to shareholders and $16 $3 million during the first six months of 2023.
The company did not repurchase any company stock during the first half of 2023 and has $125 million remaining under the share repurchase program authorized by its board of directors.
Yesterday, our board of directors declared a quarterly cash dividend on <unk> common stock of $36.05 per share payable on September 15, 2023.
Stefan has paid an increased its dividend for 55 consecutive years.
Despite the challenging current macro environment and our reduced second quarter earnings we remain confident in the strength and diversity of our business and its ability to generate cash that will allow us to continue to invest in our business and return cash to our shareholders.
Luis will now share some details about our first quarter results.
Thank you Scott My comments will generally follow the slide presentation.
Let's just start with the slide four to recap the quarter.
Adjusted net income was $12 1 million or <unk> 53 cents per diluted share.
But with $53 million or $2 30.
For diluted share in the prior year.
Because adjusted net income a non-GAAP measure we provide full reconciliations to the comparable GAAP measures.
And these can be found in appendix to the presentation and table two of our press release.
Specifically adjusted net income for the first quarter exclude deferred compensation income of <unk> seven.
$7 million compared to an expense of zero point $5 million in the prior year.
It also excludes minor business restructuring expenses and the remediation costs.
The deferred compensation figures represent the net income related to a company deferred compensation plan as well as cash cellular stock appreciation rights for our employees because these liabilities change with the morphing the stock price we exclude this item from our operational discussion.
Slide five shows the total company net income bridge for the second quarter compared to last year's second quarter and breaks down the decrease in adjusted net income because this is net income if you go to some other here I don't want an after tax basis, we will call that extend in any more detail but to summarize.
We experienced lower operating income in all segments driven by lower volumes.
The company effective tax rate was 20% in the first quarter and the first half of 2023 versus 25% in the first half of 2022.
The increase was primarily towards a more favorable tax benefits from stock based compensation awards exercised or they stay with us in the first half of 2023 versus the first half of 2022.
Let's move to slide six slide six focus on tobacco segment results for the quarter. So factor net sales were $392 million for the quarter.
19% decrease versus the prior year.
Selling prices were down 5% on volume decreased 15% year over year.
That reduction in volume was due to overall lower demand cost over in China inventory Destocking and the previously disclosed back what do you think in Asia by one customer associated with a low loan balance and competition.
Foreign currency translation positively impacted net sales by 1%.
So the fact that operating income for the quarter decreased $33 million versus the prior year. Most of this decrease is due to a 15% decline in volume.
Unit margins were slightly lower due to less favorable product mix high cost inventory carryover and increased competitive pressures in Latin America.
Higher expenses associated with our company transition to low one for Val <unk>.
And pre operating expenses, our Pasadena site, what also headwinds during the quarter.
Operating income declining nordson factors regions, primarily due to the lower overall demand launching it before as well as pressure from imports.
Now turning to polymers on slide seven net sales were $164 $5 million for the quarter, a steady 1% decrease versus the prior year Volte.
Volume decreased 29%, primarily due to a 28% volume decline in green audience.
And lower demand in the specialty polyol NPA businesses.
This was partially offset by volume growth in China.
Lower demand reflect Costco metal channel inventory, destocking and lower construction related activities.
Selling prices decreased 3% and foreign currency.
So positively impacted net sales by 1%.
Automatic body that income decreased $17 $6 million versus prior year, primarily due to the 29% decrease in global volume.
North America, and Europe results were both impacted by lower volumes Asia results improved on increased demand following the reopening of China.
Finally, our specialty products net sales were $23 $8 million for the quarter, a 14% decrease versus the prior year volume was down 16% between years, while operating income decreased $6 million versus a record second quarter in 2022.
<unk> operating income was primarily due to high cost inventory carryover pricing pressures.
Turning to slide eight although our balance sheet remains healthy we have increased our efforts to lowering working capital and reducing capital spending to adapt to the current business environment.
Second quarter cash from operation was a healthy a honda and $8 million and we deployed $103 million against Capex investments debt payments and dividends.
Net debt improved from $584 million in the first quarter of 2000 $23 million to $549 million. This quarter as we continued to deliver strong cash generation.
Now on slide nine and 10 as Scott will update you on our strategic and our strategic priorities on capital investments.
Thanks Luis.
Focus my comments on our cost and cash management initiatives and on the progress of our major capital investments in regards to our 2023 cash expenses, we continue targeting to hold full year cash expenses flat or down versus prior year. Despite continued pressure from elevated cost inflation based.
On the disappointing second quarter financial results, we are taking further actions to control costs and improve cash flow, including a voluntary early retirement program for eligible employees at our corporate headquarters and Global Technology Center, which are both located here in the Chicago area.
This program should help position us to deliver improved earnings in 2024, we expect to take a restructuring charge in the third quarter.
Our second half capital spending should decline by $70 million to $80 million compared to the first half of the year as we finish our one Ford dioxane projects in the coming weeks and begin to wind down spending on Pasadena sequentially over the remaining quarters. We also expect to reduce inventories by $40 billion in the second half.
Freeing up additional cash.
Moving to slide 10, construction on our new <unk> constellation production facility in Pasadena, Texas is approximately 35% complete and has surpassed 500000 construction hours without an injury.
The new estimated capital investment now stands at $265 million, we expect the Pasadena plant to be 90% complete by year end and to startup in mid 2020 for.
The underlining our constellation business that supports the Pasadena investment continued its strong double digit volume growth in the first half of the year and at attractive margins.
As you know, we are increasing north American capability and capacity to produce either sulfates that meet new regulatory limits on one four dioxane.
The new assets in our <unk> facility are now mechanically complete and are being converted commission this quarter new contracted low one production volumes have already started and should drive volume growth in the second half of 2023.
Once completed step and will have the largest installed low one for the oxide production capacity, serving the north American merchant market.
You will enable step in to maintain and grow our north American sulfonation business in 2024 and beyond.
Looking forward, we continue to believe second half of the year volume and margins will incrementally improve versus the first half of 2023, driven by the continued gradual recovery in rigid polyol demand growth and surfactant volumes associated with new contracted business and sequentially lower raw material costs.
While first half financial results were disappointing our anticipated lower second half capex spending and an improved working capital position should benefit our balance sheet and free up cash, allowing us to continue to invest and advance our long term strategic growth and innovation initiatives.
We expect additional actions to control costs, including today's announced voluntary early retirement program will benefit our earnings in 2024.
While the current market environment continues to present near term challenges. We believe second half adjusted earnings will improve over the first half of 2023.
This concludes our prepared remarks at this time, we'd like to turn the call over for questions. Justin. Please review the instructions for the question portion of today's call.
And thank you as a reminder to ask a question. Please press star one on your telephone and wait for your name to be announced to withdraw. Your question. Please press star one again, please standby, while we compile the Q&A roster.
And one moment for our first question.
And our first question comes from Mike Harrison from Seaport Research Partners. Your line is now open.
Hi, good morning.
Good morning, Mike.
I'm, sorry, I think I wanted to start here.
Maybe just to understand a little bit more on what you guys were seeing in terms of volume trends.
Both surfactants and polymers business as the quarter progressed, and I think what I'm really trying to get to is understanding and in both of those segments. When do you expect to see volumes stabilize and become a little bit more representative.
What what underlying demand looks like.
Yeah. Thanks, Mike.
We believe we are seeing the stabilization of both the polymers and the surfactant volumes in the I'd say the June July .
May June timeframe, so sequentially month over month in Q2, our rigid polyol volumes continued to grow.
And the surfactant volumes sequentially down 6% versus Q1.
We believe that has stabilized and in our prepared remarks, we we shared that the contracted volumes we have for the second half will drive the incremental growth from here.
So from a from a surfactant polymer perspective, I think the stabilization.
Was experienced in June and.
In July and I think we're going to be on our incremental path to recovery in the second half.
So my visits right. Let me, let me add a few other other points as Scott mentioned, we believe we hit bottom in Q2 now the dynamic.
As we mentioned in our remarks and in the earnings release is we saw sequentially.
Sequential improvement in our rigid polyol business from Q1 to Q2, but that was offset by significant destocking in the AD business.
In Q2, so that that's the piece that actually offset the progress that we saw in.
In in polymers, and we feel is probably some further.
Bob.
Destocking in the AD in the ads business, but again, the polymers business under new contracted volume.
Should offset should offset that so we believe we saw the bottom.
And we believe we have the elements that get our improvement in this segment.
And you answered.
Relates to kind of where you guys are on price and cost.
Obviously pricing is coming lower it looks like lower bulk.
Bulk of your key segments.
But you're still running some higher cost.
Inventory through the P&L.
Maybe just give us an update on when you would expect to be at a point where you.
You could see.
Those dynamics start to balance out at and maybe start to see some recovery.
In unit margins.
Your inventory costs come lower.
Maybe start to reflect a little bit more on what the current pricing environment looks like.
Good question, Mike Let me separate two things one is we saw unit margin.
Significant compression in the specialty product business.
That's a separate.
Add them all 5% of the company, but we do know that we had a significant high base in the first half of 2022. So when you think of lot inventory carryover and pricing pressure because a lot of imports on Hcp's from Asia, That's the business, where we saw.
A good impact on unit margins, when you think about surfactants or polymers.
Our unit margins are still very healthy of course, you saw the company with the overall minus 4% in price meets our raw materials prices went down 5%. Okay. So so our unit margins.
<unk>.
Adding in line.
Our expectations.
And we believe as we said in our remarks that in the second half, we should see not only get our volume growth, but but also get out of the margin improvement as we continue running down the high inventory cost material as you mentioned so.
This is not going to be a big jump in one month or one quarter, but we see good improvement throughout the.
The next couple of quarters.
And let me say that all that of course, when you look at oil prices on when you think about all our core ready.
Raw materials that we see we see also is an established nation.
Right, we're still running the high ones, but but we are not planning for significant increases or decreases in raw materials in Q3, and Q4 on a spot basis you saw oil in the AED.
Just kind of baked consensus for the next few quarters.
Alright understood.
And I guess my last question here.
You mentioned some cost actions, you're taking on early retirement plan.
And expect it to take a restructuring charge in the third quarter.
Maybe a little bit more color on some of the actions that you're taking and do you have any sense of what the savings associated with those actions.
Look like at this point.
Yes, Mike.
We just announced that program today internally. So this is really premature to be talking about or estimating what the potential size could be will be back in Q3, when we have more details about.
The progression of the plant.
Alright understood thanks very much.
Andrew I think and thank you.
And one moment our next question.
And our next question comes from Vincent Anderson from Stifel. Your line is now open.
Yes. Thanks.
So if I go back a little ways.
The implied dollar contribution from from volumes and surfactant since 2020, if you don't mind you had.
Like a $75 million tailwind during 2020, and then some sudden you've had cumulative volume declines are a little over $300 million and yet until this or you were maintaining dollar earnings.
<unk>.
That kind of general trend lower can.
Can you just maybe refresh my memory on how the business has trended over the last few years in that respect and what specifically about this leg of volume headwinds is really finally weighing on dollar earnings.
Vincent So if you think about if you think a lot of surfactants in the last three years. So remember 2020 of course because spike.
With the pandemic volumes volumes volumes off.
Our clear strategy, our clear strategy is to continue growing in the functional business higher margin business and growing with tier two tier three customers.
Which also provide.
Higher margins so that what you saw in the last two to three years, despite volume reduction from the peak of the pandemic in 2020.
We were able to materialize how would a strategy good all in our functional business growing our construction loans.
The industrial business and growing our tier two tier three.
That's why we were able to I think we have talked a lot about these right I mean.
That is very difference in profitability, I mean 100 million pounds here.
<unk> can mean 10 million pounds and another in another segment.
When you think of a different type of profitability.
Our strategy and we executed on our strategy.
Okay.
And then could you talk about maybe in a bit more detail.
Pore pressures on Latin America, and maybe separate that out between.
Your Mexican sulfonation business, which if I recall has a pretty significant market position and then maybe the rest of the Latin American exposure broadly.
Yes.
So I would say.
Starting to experience the competitive pressures early earlier this year.
And Thats really because China reopened a lot of production.
Ramped up in Asia in anticipation of that and China as we all know hasnt recovered at the pace.
We thought and there's been a lot of import pressure up and down the South American coast and even into Mexico.
And there were still supply chain constraints.
Specific to Mexico's.
The fact that market that also required.
Imports to.
Cover security of supply.
So thats whats really impacted the Mexico business as imports and competitive pricing pressures taken margins down.
To a much lesser extent, but.
Our Columbia, our business throughout the Andean region, including our production site in Colombia is also seeing competitive pricing.
Pressures.
That region of the world tends to be one of the first at CES.
The aggressive imports to try and move volume and keep production up on the plants that we started in China.
Brazil, probably a little less the Brazilian market is.
As more locally supplied.
And I'd say, the pressure's been less in Brazil, but.
I think what we've seen is that activity stabilize.
And we expect second half volumes to incrementally improve.
Okay. No that's very helpful and maybe just specifically on on price I know raw materials are a significant component of that but.
Did you make a conscious effort to prioritize price over volume in some of these areas with the expectation that that the competition would be pretty transient and you'd exit in a better position or do you expect your prices to to have to react to this competition.
The your former statement is correct so.
Yes.
Once we assess the situation reacted appropriately with pricing measures to ensure that we could stabilize volumes.
Alright excellent. Thanks, very much that's all from me.
And thank you.
And one moment for our next question.
And our next question comes from Dave storms from Stonegate. Your line is now open.
Good morning.
Good morning.
Just hoping you could just.
Most of the current customer acquisition environment, and kind of what youre seeing on that front.
Yeah.
Within the surfactant industry, our surfactant business I should say.
There is still a lot of new customer acquisitions that happening I would call it.
The first half there is definitely a higher level of churn within our our surfactant business as <unk> had competitive activities customers looking for lower prices, but.
On the flip side, we have the acquisition of new businesses.
<unk> done very well and has not been.
Constrained or hampered by.
By any issues as it relates to pricing in the marketplace. So.
I would characterize this as a much higher churn environment, but the new customer acquisitions continue at an acceptable pace from our perspective.
Very helpful. Thank you and then just turning to the balance sheet your net debt.
Slightly.
Sequentially quarter over quarter, just curious how comfortable you are with the steady 1% level.
Debt repayment is expected to take center stage once Pasadena is a promotion.
Yeah. So as you saw right I mean, we are.
We have invested in the business in the last few years, because we believe in our end markets with they've been based acquisition, we have two big provenance, a low one four and Pasadena. The good news is that a lot of that investment is behind us right.
Our investments for the next 510 and 20 years. These are not investments for the short short short term only so we need to look at them with a long term view that.
These are the right investments and again the good news is that we.
We are past that.
<unk> cash outflows.
From here, we need to continue improving the business. So we can continue deleveraging the.
The balance sheet to invest in other new opportunities that for sure will materialize, we have talked in the past a lot about fermentation.
And we will continue to be in the future.
More acquisitive, we will continue looking for opportunities.
That's perfect. Thank you very much.
Thank you.
And one moment please.
If you would like to ask a question that is star one one again, if you would like to ask the question now is star 111 moment for our next question.
And our next question comes from David Silver from CL, King and Associates. Your line is now open.
Yes, hi, good morning, Thank you.
Oregon.
Hey, good morning.
Scott.
A couple of areas maybe.
Our focus but.
If you wouldn't mind I'd like to maybe start with the customer destocking activity.
And kind of.
Your perspective on that so.
Like a number of companies you did have a lot of you did have a meaningful impact from customer destocking this quarter, but I.
I guess.
There is probably may be the devil might be in the details there, but if you were to characterize the destocking activity would you say, it's from the tier two and tier threes, where you cited some price competition regionally or would you say this is maybe the bigger merchant market custom.
<unk>.
For whatever reason they seem to be carrying more inventory into this.
Into the seasonal period than was anticipated so and.
In other words, maybe if you could just characterize the nature of the Destocking that you were seeing beyond just the raw percentages or numbers.
And then just taking that a little further you did talk about <unk>.
Further reductions I guess on your inventories.
That you anticipated in the back half of the year and any kind of color.
On the nature of that.
Is it.
Do you have the inventories because customers are trading down or because I don't know regional economies are slower than you anticipated just.
Just some color on the nature of the Destocking activity that.
<unk> seen in the second quarter and the anticipate in the back half of the year would be helpful. Thank you.
Thanks, David.
With regards to Destocking. So the Destocking, obviously started to happen in Q1.
Definitely in the polyol side of our business for sure.
And and I would say all segments of our consumer products business.
I think.
When you look back and try to appreciate try to appreciate how much inventory was stuffed throughout the channels I don't think anyone had a really good handle on it what we can say going forward is in the rigid polyol business, we think that the stocking is predominantly behind us.
And we're now starting to get into a normal demand pattern for the second half of the year I would say the same thing is true in consumer products.
The Destocking, probably bottomed out in late April may and we're now going to be entering a normal stabilized volume pattern going forward. The surprise for US was in agricultural chemicals. So we had an all time record volume in the agricultural chemicals and.
Q1.
And in May.
That kind of all stopped abruptly and it has to do with what segment of the market you are servicing a wide here in the commodity generic pesticide.
And markets are if you are in the proprietary branded our business is more associated with proprietary branded.
You saw companies announcing Q1 massive slowdown in AD, we did not see that because we're in a different segment of the market.
We did see it and we are experiencing it now the channel is full in the agg and it'll probably take us through the end of Q3 before we get back to a normal inventory demand pattern for act. So I'd say that the different industries different markets all experienced the same issue at different times, but.
I want to leave you with I think polymers.
Destocking is predominantly done and the surfactant side, we expect a normal demand pattern for the second half.
Thank you for that and just so just to clarify of the back half liquidation, it's predominantly or it's tilted significantly towards towards the AG Chem and not.
Other surfactants and not so much on the polymers does that is that a fair.
Summary of what you outlined.
Correct and you asked about inventory reduction, we're really talking about our raw materials and a little bit of finished goods.
Some of that is operational as well one of our large plants is on a river that's going through.
Major lock reconstruction, so we have to bring in higher levels of materials ahead of that three or four month outage. So when that project is done at the end of September we will be back to more normal inventory levels in the polymer business as well. So I think we shared earlier and a $40 million target reduction for the second half and.
<unk>.
That's a real number for our from our perspective and our expectation.
Thank you for clarifying I'd like to also just touch on the I guess the current timeline for the Pasadena expansion. So.
I may be a little off but it seems like now mid 2024 means maybe another quarter or so.
Flip.
The overall planned startup.
Not.
Overly dramatic in the whole scheme of things.
But I was just wondering if you could characterize your decision to kind of maybe.
Move the timeline to mid 2024 so.
Is that a reflection of I don't know customer customer demand or customer orders is that may be tied to the construction timeline and not anything else or.
Or might there be some other factors but.
Why why would you say mid 2024 is now the right.
The timing for that for your most for you.
Your largest capacity expansion project ever.
Yes. Thanks for the question David though this is strictly related to.
Delays within the construction process as we mentioned in our prepared remarks, the underlying business. The product line that is going through these these new assets is continuing to grow at strong double digit volumes sequentially quarter over quarter. So so the business is healthy.
We're in the construction the actual construction phase of the project right now so youre getting design field change issues youre getting youre into that labor constraints. So these are just little progressive.
Months delays that have caused us to I think we're about six months behind what our initial planned targeted startup.
We expect to be mechanically complete by the end of Q1 and commissioning the asset in Q2, so from an external view when you think about one commercial volumes are available the right timeframe for us to articulate is mid 2024.
Okay.
Yes.
Go right ahead sorry.
I was just going to say, David it's at our highest best interest to get that asset up and running as soon as we can because the demand is there.
Okay I definitely heard your demand comment I missed the detail on the construction timeline. So thank you for clarifying that.
And then this last question I would just say I'm just wondering.
May be a subtlety and I may be just way off but.
And thinking about your development and rollout of the one low one four dioxane product.
Could you kind of talk about it a little bit maybe from a marketing perspective in other words.
Is there kind of a bit of given take or.
Yes.
Trying to think of the right word but is there an issue where your customers who receive.
The new newer lower low one four dioxane version of.
And intermediate chemical or a formulation that you have been supplying them.
Is this kind of the case, where.
They swap out.
Their legacy products and use yours is a drop in <unk>.
Replacement or.
How does that kind of.
Work out just in practical terms.
How do you kind of transition your customers from the traditional version of your product to the new one and does that cause any has that caused any of the customer liquidation or the backups or some of the some of the issues that may be.
Have flowed through your results for last quarter or two.
David Great question.
Simplest comparison I can think of quickly here is this is like the U S gasoline market switching from leaded to unleaded.
So everyone was putting everyone is putting gasoline or in this case either sulfates in their shampoos and now the regulation changes at a certain date that says it now has to have.
Low 100, <unk>, so we've been working with our customers over the last three years to manage that transition from leaded to unleaded gas right. So from a Margaret play. There is there is not a lot of <unk>.
Differentiation et cetera.
Its a regulation change and it's the removal of that byproduct from our existing franchise that has been the heavy lift.
So I hope that answers your question.
Yeah no. Thank you that was great cannibalization was the word I was trying to think of.
That's very helpful. I'll stop there and maybe get back in the queue. Thank you.
Thank you.
And one moment please.
One moment our net.
Question, and we have a follow up question.
From Vincent Anderson from Stifel. Your line is now open.
Yes. Thanks, I just had one more quick one you mentioned I think our constellation demand and your current product portfolio was up double digit year to date is that correct.
Correct correct.
Yeah, I believe the estimates that I've seen typically put demand growth for that family and kind of the mid to high single digit area. Best. So can you talk about what's been driving your growth in your portfolio specifically.
Specifically.
Yes, so it's pretty simple, it's a $265 billion investment tremendous focus from our commercial and R&D organizations and we are we are we are winning out in the marketplace with <unk>.
With our product offerings and our more importantly, our service. So there's a lot of there's a lot of formulation activity that's happening within the surfactant industry because of sustainability needs because of all the supply chain constraints that have happened in 'twenty, one and 'twenty two so there's a lot of opportunity to engage with.
<unk> formulation projects and quite honestly, we're winning.
Hi.
That's good to hear and then maybe just a quick quick follow up on just how you commercialize a plant that size.
With the growth that <unk> seen so far is it is it really kind of where the customer mix today that is matched to your current capacity and Youll just have to take what you've learned and start over with the higher volumes and higher volume customers or is this going to translate pretty quickly too.
Larger off take once the plants up and running.
Yeah. So.
Or that plant starts up there is a a strong baseload demand already existing within our business.
As.
As we move product around both an internal and external manufacturing co producer network.
So we're pretty confident that we're going to have a good base load upon startup.
The transition timeline. So once the commissioning process will take months Theres a lot of different products that a lot of number of qualifications. So when youre talking about steady stream continue.
Continuous demand.
Going to be Q3 at the earliest before that.
Sustainable stream of production is online.
Okay. That's perfect. Thank you very much.
And thank you.
One moment please.
And I am showing no further questions I would now like to turn the call back over to Scott Burns for closing remarks.
Thank you Jeff.
Thank you very much for joining us on today's call. We appreciate your interest and ownership in Stepan company and please have a great day.
This concludes today's conference call. Thank you for participating you may now disconnect.
Okay.
[music].
Okay.
Okay.