Q3 2023 DuPont De Nemours Inc Earnings Call

[music].

Good day and welcome to the Dupont specialty product USA, a little see third quarter actually went to 23 earnings conference call.

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I'd now like to welcome Chris to begin the conference Chris over to you.

Good morning, and thank you for joining us for Dupont's third quarter 2023 Natural results Conference call. Joining me today are Ed Breen, Chief Executive Officer, and Lori Koch Chief Financial Officer.

Our prepared slides to supplement our remarks, which are posted on dupont's website under the Investor Relations tab and through the webcast link.

Please read the forward looking statement disclaimer contained in the slides during this call we will make forward looking statements regarding our expectations or predictions about the future. Because these statements are based on current assumptions and factors that involve risks uncertainties.

<unk> performance and results may differ materially from our forward looking statements our Form 10-K as updated by current and periodic reports includes detailed discussion of principal risks and uncertainties, which may cause such differences.

That's otherwise specified all historical financial measures presented today are on a continuing operations basis and exclude significant items. We will also refer to other non-GAAP measures a reconciliation to the most directly comparable GAAP financial measure is included in our press release and presentation materials have been posted to Dupont's Investor Relations website.

I'll now turn the call over to Ed.

Good morning, and thank you for joining our third quarter 2023 financial review this.

This morning, we announced third quarter results and delivered solid earnings accomplished through strong operating execution by our teams despite ongoing volume headwinds.

<unk> channel inventory Destocking and continued weak demand in China.

Reported sequential operating EBIT growth of 5% and margin.

Third 40 basis points in the third quarter.

We also produced strong cash flow during the quarter with adjusted free cash flow of almost 50% higher than the year ago period.

Our efforts to prioritize working capital improvement and the challenging global business environment and normalizing after last year's global supply chain difficulties.

Compared to third quarter 2022 organic revenue declined 10%.

Primarily to the impact of incremental channel inventory Destocking.

Lower volumes from semiconductor and construction end markets.

Within our electronics portfolio, our interconnect solutions business recorded a second straight quarter of sequential sales lift as underlying demand improvement.

Seasonality contributed to an 8% sales increase.

We also saw signs of stabilization with the semiconductor markets in <unk>.

Expect some sequential sales improvement from.

Semiconductor technologies in the fourth quarter.

Third quarter volume was lower than expected, primarily due to incremental channel inventory destocking, including with our distributor customers, which was evidenced in the water solutions and safety solutions lines of business.

In this environment, we remain focused on controlling discretionary spending and are also planning additional restructuring actions to continue to ensure we can dry sound operational and financial performance.

We're getting at least $150 million in annualized run rate cost savings, which we expected. We can see later in the first quarter of 2024.

It's always difficult to precisely timed marketing collections with current industry forecast within electronics Submarkets sulfur recovery during 2024.

This includes forecast for PC shipments to grow mid single digits.

Given by replacement demand smartphone shipment growth in the mid single digits also driven by replacement demand and new product launches and for server demand to gradually increase next year.

This growth is supported by the rapid surge in demand for AI servers, as well as a replacement for traditional servers.

In general demand for high performance and high density memory chips is accelerating supported by AI growth as well as overall growth for new global product launches.

This directly correlates with dupont's product strengths within the semiconductor and consumer electronics markets.

Despite the near term headwinds we are experiencing we are.

We're confident that our key end markets are well positioned for long term growth and we expect these structurally attractive markets will provide the foundation for dupont's value creation looking ahead.

Turning to slide four we significantly advanced our strategic and capital allocation priorities during the quarter to drive shareholder value.

First we closed the acquisition of spectrum on August one, which fits nicely alongside our <unk> healthcare related product line within our industrial solutions line of business within the Eni.

We are pleased with spectrums operating results to date.

Which are aligned with our modeled estimates.

We're excited to welcome the spectrum team, which is currently focused on executing new revenue growth opportunities stemming from significant customer wins earlier in the year.

Second I am pleased to announce that we are in the process of closing today, the previously announced sale of our roughly 80% ownership interest in the Delaware and business.

Main piece of the former <unk> segment held for sale.

So the private equity firm T J C and a transaction value of the business at $1 8 billion.

This deal was structured to maximize value for our shareholders to provide significant significant upfront cash proceeds with minimal expected tax impact.

Which can then be deployed in line with our strategic priorities.

It also provides an opportunity for us to participate in future upside returns upon the exit of our retained interest in Delaware.

T. J C has an excellent track record of creating value and we look forward to leveraging their talent and focus to continue to grow the high quality <unk> business.

Regarding share repurchases in September we completed the $3 billion to $5 billion accelerated share repurchase transaction launched last November.

We then launched a new $3 billion ASR, which we expect to complete during the first quarter of 2020 for.

Combining these two ASR transactions, we have repurchased approximately 15% of our outstanding shares when complete reflecting our continued commitment to returning capital to shareholders as part of our balanced financial policy.

Including these asr's and the proceeds from the dollar and sale, we anticipate finishing the year.

Close to our target net leverage ratio of about three one times.

Further we anticipate using a significant portion of excess cash during 2024 for.

For incremental share repurchases once the ASR is complete.

With that I'll turn it over to Laurie.

Thanks, Pat and good morning.

Our team continued to execute well in a softer volume backdrop, driven by broad based inventory destocking, demonstrating strong financial discipline to focus on operational excellence.

Pleased with the sequential margin improvement registered by each of our segments and third quarter as well as our strong cash performance in the period.

Given volume headwinds, that's delivering a stronger margins and better cash flow are attributed to execution around lowering our input costs.

Coordination with the operating team to rightsize, our inventory position as well as overall.

Overall progress productivity by our operational excellence initiatives.

We are very focused on operating discipline between that site level operating execution at positively positioning us for solid margin upside as volumes recover.

Expect to see evidence of that in 2024, given the expected recovery in key end markets, including electronics.

Turning to our financial highlights on slide five third quarter net sales of $3 1 billion decreased 8% versus the year ago period, a 10% organic sales decline was slightly slightly offset by a 2% portfolio benefits.

Primarily to revenue contribution from the spectrum acquisition.

The organic sales decline reflects a 10% decrease in volume, resulting primarily from semiconductor and construction end markets as well as the impact of channel inventory Destocking.

Eni in WP organic sales declined, 13% and 8% respectively.

Retained businesses and corporate reported 1% organic sales growth, including mid single digit growth in the portfolio.

From a regional perspective consolidated Dupont sales decrease on an organic basis globally versus the year ago period, with Asia Pacific North America, and Europe down, 12%, 10% and 2% respectively.

China sales were down 16% on an organic basis versus the third quarter of 2022, So eni sales in China increased sequentially in the quarter, it's a smaller year over year declines in each of the last three quarters.

Third quarter operating EBITDA of $775 million decreased 9% versus the year ago period, driven by lower volumes and the impact of reduced production rates, primarily within the Eni, we align inventory with demand.

Partially offset by lower input costs related to raw material logistics or energy along with our portfolio benefits from spectrum.

Operating EBITDA margin during the quarter of 25, 3% was down 50 basis points versus the year that period, driven by volume pressure in our high margin benefit and reduced production rates, primarily within the Eni Beckman.

That partially by cost deflation benefits.

Increased somewhat from second quarter levels.

On a sequential basis operating EBITDA was up 5% and operating EBIT margin improved 140 basis points.

Decremental margin for the quarter was 31% enabled by cost inflation and aggressive actions taken year to date to reduce spending.

As I mentioned earlier I am pleased with our cash flow improvement during the quarter optimizing working capital performance continues to be a top priority for us and.

On a continued operations basis cash flow from operations of 740 million less capital expenditures of 119 million resulted in adjusted free cash flow of $621 million in the third quarter.

Operator: All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. And if you would like to ask the question during this time, simply for a star followed by the number one on your telephone keypad. If you would like to withdraw your question, please press star one again. In the interest of time, please keep to one question and one follow up question per person. For Operation Assistance throughout the call, please press star zero. And finally, I would like to advise all participants that this call is being recorded.

A 45% increase versus the year ago period.

Adjusted free cash flow conversion during the quarter with 151% an increase versus last year and much improved compared to the first half of this year.

We currently expect to finish the year with conversion around our targeted level of 90%.

Turning to slide six adjusted EPS for the quarter at <unk> 92 per share increased 12% compared to 82.

Unknown Executive: Thank you.

The year ago period.

Below the line benefits, including combined 16 benefit related to a lower share count and lower net interest expense.

Then offset lower segment earnings.

They are below the line benefits, including a lower tax rate and lower foreign exchange losses contributed to.

To adjusted EPS improvement versus the year ago period.

Our tax rate for the quarter was 24, 6% down from 26, 2% in the year ago period, driven by the impact of rates you're left in the year ago period, and lower than our previously communicated modeling guidance as discreet tax headwinds with lower than expected.

Our expectation and our full year 2023 base tax rate of 24% remains unchanged.

Turning to segment results beginning with Eni on slide seven.

Eni third quarter net sales of $1 4 billion decreased 9% as organic sales declined 13% offset partially by a portfolio benefit of 4% from the spectrum acquisition.

Chris Mecray: I'd like to welcome Chris McCree to begin the conference. Chris, over to you.

<unk> sales decline reflected a 12% decrease in volume and a 1% decrease in price.

Ed Breen: Good morning, and thank you for joining us for DuPont's third quarter of 2023 financial results conference call. Joining me today are Ed Breen, chief executive officer and Lori Koch, chief financial officer. We have prepared slides to supplement our remarks, which are posted on DuPont's website under the investor relations tab and through the webcast link. Please read the foreign looking statement disclaimer contained in the slides. During this call, we will make foreign looking statements regarding our expectations or predictions about the future, because these statements are based on current assumptions and factors that involve risk and uncertainties, our actual performance and results may differ materially from our foreign looking statements.

At the line of business that while organic sales for semiconductor technologies were down high teens versus the year ago period, resulting from a continuation of inventory destocking across the channel and to a lesser extent ongoing weak end market demand and the impact of China trade restrictions.

Ed Breen: Our form 10k as updated by current and periodic reports includes detailed discussion of principle risks and uncertainties, which may cause such differences. Unless otherwise specified, all historical financial measures presented today are on a continuing operations basis and exclude significant items. We will also refer to other non-gap measures, a reconciliation to the most directly comparable gap financial measure is included in our press release and presentation materials and have been posed to DuPont's investor relations website.

On a reported basis semiconductor technologies sales were flat sequentially in the third quarter.

With an interconnect solutions organic sales declined 11% year over year due to both volume and price declines driven by the pass through of lower metal pricing.

Ed Breen: I'll turn the call over to Ed.

Volume continued to be impacted by weak smartphone PC and tablet demand, particularly in China, along with more moderate inventory Destocking, which we believe it's March eight weeks.

On a sequential basis, the interconnect business recorded a second straight quarter of sales improvement with.

With sales up 8% driven by seasonality as well as some underlying demand improvement again PCB market.

Organic sales for industrial solutions were down high single digits versus a year ago period, due primarily to destocking and biopharma applications for Olivia product lines and continued lower demand in electronics related end markets.

These declines were partially offset by increased demand for OLED display materials.

Operating EBITDA for Eni of 383 million was down versus the year ago period, primarily due to volume decline and lower operating rates to better align inventory with demand slightly offset by a portfolio of benefit related to spectrum.

Operating EBITDA margin increased 140 basis points sequentially during the third quarter.

Turning to slide eight every year in peak third quarter net sales of $1 4 billion declined 8% versus last year as volume decline of 9% was slightly offset by a 1% increase in price.

Carry over impact of actions taken last year.

Within safety solutions organic sales were down high single digits due primarily to channel inventory destocking.

Shelter solutions sales were down high single digits on an organic basis, driven by continued demand softness and construction markets and ongoing channel inventory destocking.

On a sequential basis from the second quarter shelter sales increased slightly and we expect narrower year over year declines in fourth quarter.

Organic sales for water solutions were down mid single digits versus the year ago period, due primarily to inventory destocking, including with distributor customers.

Our industrial project demand in China, maybe impacting reverse osmosis.

We expect generally flat sequential volumes in the fourth quarter versus the third quarter.

Operating EBIT for WP during the third quarter of $362 million decrease versus the year ago period, due to lower volume, partially offset by the impact of net pricing benefit.

Operating EBITDA margin of 25, 6% increased 70 basis points year over year, and 100 basis points sequentially from the second quarter.

Turning to slide nine I will close with a few comments and what we are seeing in the fourth quarter and how that translates to our full year 2023 guidance.

Underlying consumer electronics demand in the fourth quarter is expected to be generally similar to the third quarter with some sequential sales much expected in semiconductor technology.

As mentioned earlier, we saw additional channel inventory Destocking and floater industrial demand in China, mainly impacting water solution compared to prior expectations.

We assume these same trends continue through the end of the year.

As a result of the incremental volume softness.

We're adjusting our net sales and operating EBITDA guidance and now expect full year net sales to be about $12 1 billion in operating EBITDA to be at about $2 97 billion, which is at the low end of our prior range.

For the fourth quarter, we expect net sales of approximately $3 billion.

The sequential decline versus the third quarter, driven predominantly by additional inventory Destocking and the safety solutions line of business and to a lesser extent by the impact of seasonality and incremental currency headwinds.

We expect full year 2023, adjusted EPS to be approximately $3 45 per share at the midpoint of our prior guidance range.

With that we are pleased to take your questions. Let me turn it back to the operator to open the Q&A.

At this time I would like to remind everyone in order to ask a question. Please press Star then the number one on your telephone keypad.

The interest of time, please keep to one question and one follow up question per person.

Well pause for just a moment to compile the Q&A roster.

Your first question comes from the line of Jess <unk> eventual research partners vertical research partners. Your line is open.

Thank you and good morning, everyone.

Hi, Jeff.

Morning, Ed.

A lot going on in these channels obviously.

Do you have any.

Kind of sense or how do you measure kind of your sell in versus sell through trying to kind of understand.

Kind of what that incremental headwind is from inventory versus just kind of general demand trends.

Maybe just a little bit of color on how much more you might have to do on inventory or production to kind of get things, where you where you need them to be balanced out.

Yeah, Jeff So we did a pretty detailed analysis of it and I think a good way to look at it.

What is our district distributor customers doing versus our direct end customers. So maybe just to give you a couple of numbers on the <unk> side of our business about 50% of our volume goes through distribution and the other 50% we sold directly to customers.

And so we did a whole analysis, obviously, because the distributors you can see quick what's going on with them and almost across the board the distributor network.

As destocking.

Broadly.

And it's on a percentage basis down significantly more than our direct customers. So.

Just one because it hit us this quarter, our water business in China, which is mostly reverse osmosis.

Was down 36% of it goes through distribution the rest, we sell direct to customers, but the 36%.

The third of our sales that go through distributors.

China It was down 36% through distribution was down about 12% direct to the customer base.

If you do that analysis on our safety business, you get very similar trends going on so clearly the distributors are going through a destocking I'm sure as we are approaching year end everyone's trying to get their inventories kind of where they want them.

Now having said that my take is that the destock, obviously goes into the first quarter. If we just started to see it in some of these <unk> businesses.

But I would think the distributors work it down fairly quickly.

After we're kind of exiting the first quarter, but that same trend applies almost across the board. When you do that analysis. It's the distributors are way way down vis vis the direct customer channel.

And on the absorption question, we're still in the same general ballpark in the second half is where we were in the first half there's a little bit of a mix will be taking a little less absorption headwinds in eni in a little more in wip as we see the Isaacs continue as we head into the fourth quarter to write in total that number is about equal to the first half.

Great and I was wondering if you could give us a little color on restructuring also and I think you mentioned $150 million run rate.

Wasn't sure if that was full year 2024, but maybe just give us a sense of how much.

Restructuring tail you have in 'twenty three the incremental benefit you expect in 2004.

As volumes kind of hopefully improve into 2020 for some of that just kind of discretionary temporary stuff that kind of comes back into the P&L.

Yes so.

On an annual basis, Jeff will be at about $150 million of savings kind of spread between plant fixed cost and functional costs.

Ed Breen: Good morning and thank you for joining our third quarter 2023 financial review. This morning, we announced third quarter results and delivered solid earnings accomplished through strong operating execution by our teams despite ongoing volume headwinds, including channeling the Tory destocking and continued week demanded China. We reported sequential operating even a goal of 5% and margin improvement of 140 basis points in the third quarter. We also produced strong cash flow during the quarter with adjusted free cash flow almost 50% higher than the year ago period, highlighting our efforts to prioritize working capital improvement in a challenging global business environment and normalizing after last year's global supply chain difficulties.

Mostly G&A expense.

Touching R&D at all.

And finally, just the backup on that Laurie and I have been looking at this kind of how we can do some restructuring for over a year. So we're not doing it just in response to what's going on I think I would just add one other earnings calls we started looking at it but we're actually a summer ago.

How can we streamline a little bit more so we are ready with that we'll start seeing the benefits of the restructuring.

Towards the tail end of first quarter, we'll get going on it.

By the middle of December.

So by time it hits, we get things go into it youll start to see the benefit density you'll kind of get three quarters of the benefits.

A big chunk of that in 2024, a little bit of that would potentially come back on the fixed cost.

Plant fixed cost side as volumes pick up but not all of it so you'll get a little bit of that coming back in as we see the volumes lift.

But.

That's basically the program.

Great. Thank you.

Thanks Jay.

Your next.

Question comes from the line of Scott Davis of Analyst Research. Your line is open.

Hey, good morning, everybody.

Hey, Scott Chris.

Chris.

Good morning.

A couple of things I mean, just to follow up on Jeff's question, because it just seems like it's so important in topical for you guys I mean, there's.

Two reasons why people destock inventory right I mean, one is maybe the lead times come down and they feel like they can get it fast and two is they are really worried about their customers not wanting prop.

Product and I'm talking to the distribution level not your direct what.

What are you what do you think.

What do you think are the main drivers of this kind of incremental because we've been talking about the inventory destock for several quarters now and this quarter seemed like it almost got a little bit worse, particularly in water and protection.

Yes.

Scott I'd, just give you a ballpark my shrinking I think two thirds of it.

Our 75% something like that is really that the supply chain healed itself, it's pretty darn normal for everybody again, so everyone sat on excess inventory I mean look we're doing the same thing we had 151% cash conversion, we're lowering our inventory levels, because we have built up more than with nuclear norm.

Ed Breen: Compared to third quarter 2022 organic revenue decline 10% due primarily to the impact of incremental channel inventory destocking along with lower volumes from semiconductor and construction and markets. Within our electronic portfolio, our interconnect solution business reported a second straight quarter of sequential sales lift has underlying demand improvement and normal seasonality contributed to an 8% sales increase. We also saw signs of stabilization with his semiconductor markets and expects some sequential sales improvement from semiconductor technologies in the fourth quarter. Third quarter volume was lower than expected, primarily due to incremental channel inventory destocking, including with our distributed customers, which was evident in the water solutions and safety solutions lines of business.

We would during Covid and every other CEO I talked to is doing the same thing so.

I think as the pressure youre getting near the end of your Youre really trying to get things in line for 2024, So I think a big part of this app, but there is certainly as a percent of people just more worried is there a recession coming.

You've got an inverted yield curve for 18 months people start getting nervous there's always been a recession. So.

I can't say, that's not if that's in there but.

But I think the bigger part of it is we just all build excess inventory.

Well, we could get.

During COVID-19 and probably I'll give you. One example, because we're seeing some destocking on the metal packaging side.

Yes.

A year ago I had most of the Ceos of the medical device companies personally colombey bleeding that we could ship more tie deck material for packaging. So they could ship their products out and I remember, telling a matter of fact I sent a letter to the trade industry I said, our shipments to you were up 18%.

So far this year.

I can't do much more.

And that was everyone's scrambling to get it and then they overshot.

Now I, probably shouldnt be surprised we're seeing some destocking on the medical packaging side.

I think that's just a great example that has nothing to do with the recession. That's just everyone had too much.

Yes, that's great color and makes it makes a lot of sense.

No I wanted to ask about price and I know with the two segments or just weigh different eni kind of manage price versus cost in.

W. P. Maybe theres a little bit of a different price strategy, but when you think about like this.

This new normal of higher inflation wages other costs.

Not.

Not explicitly material costs, but other costs.

How do you think about price and kind of a future construct.

Entering into 2024.

It's probably more of a valid question for <unk>, but maybe you can address for both both segments and give us a little sense of what yes, I don't think.

Yes, Scott I don't think 2024 will be what you would consider a normal year than in a normal environment. A few years in a row, just normal things, which we haven't had in four years.

For anybody.

We would always get like one 5% to 2% price lift and the Wi Fi business.

Our goal in 2020 for us to hold onto as much pricing as we can and yes, you always you see us and others were getting benefit from.

Price cost spread that we saw within the third quarter, which helped US outlook. Obviously you see it in the fourth quarter. So our goal is to really manage that well for 2024, because there's still quite a bit there now we're not going to get all the cost back by renegotiating contracts everyone's trying to hold price of our vendors are trying to hold it.

But.

We're still up to about 225 million that we've gotten back.

So I mean, thats pretty significant for us and so we're hoping to hold that for next year I might got is we're going to give up some pricing in the shelter business, because we don't want to lose market share.

But a lot of the other businesses will really be managing that slightly but then if we ever get back to normal times. Hopefully 2025, we will look at that one 5% to 2% price increase.

Ed Breen: In this environment, we remain focused on controlling discretionary spending, and are also planning additional restructuring actions to continue to ensure we can drive sound operational and financial performance, targeting at least 150 million in annualized run rate cost savings, which we expected in seeing later in the first quarter of 2024. It's always difficult precisely time market inflections, occurring industry forecast within electronics on markets, also recovery blind 2024. This includes forecast for PC shipments to grow mid single digits driven by replacement demand, smartphone shipment both in the mid single digits, also driven by replacement demand, and new product launches, and for server demand to gradually improve next year.

In electronics, we just try to holdup about flat usually were flat to down 1%, but you get nice volume lift.

Yes, good color. Thank you I'll pass it on I appreciate it yeah. So I'll start by talking to you. Thank.

Ed Breen: This growth is supported by the rapid surge in demand for AI servers, as well as replacement for traditional servers, in general demand for high performance and high density memory chips is accelerating supported by AI growth, as well as overall growth for new mobile product launches. This directly correlates with Dupont's product strengths within the semiconductor and consume more electronics markets.

Thank you. Thank you.

Your next question comes from the line of Steve Tusa of Jpmorgan. Your line is open hi, good.

Good morning, Hi, good morning, good morning.

Ed Breen: Despite the near term headwinds we are experiencing, we are confident that our key and markets are well positioned for long-term growth, and we expect destructurally attractive markets will provide the foundation for Dupont's value creation looking ahead.

Can you just update us on what you actually expect for what was the price cost spread this quarter and what you expect now for the year.

Yes, so our full year number we ticked up to $225 million versus the last quarter. We had expected about $140 million. So we're seeing that deflation benefit come through in the back half. So in the third quarter. We saw net about $75 million benefit, we'll see that tick up to roundly $100 million in the fourth quarter.

Ed Breen: Turning the slide forward, we significantly advance our strategic and capital allocation priorities during the quarter to drive shareholder value. First, we close the acquisition of Spectrum on August 1, which fits nicely alongside our Olivia healthcare related product line within our industrial solutions line of business within the NI. We are pleased with Spectrum's operating results today, which are aligned with our model estimates. We are excited to welcome the Spectrum team, which is currently focused on executing new relevant both opportunities, stemming from significant customer wins earlier in the year.

Ed Breen: Second, I am pleased to announce that we are in the process of closing today the previous year announced sale of our roughly 80% ownership interest in the Delrin business, the remaining piece of a former admin and segmental for sale to the private equity firm, TJC and a transaction value into business at 1.8 billion. This deal was structured to maximize value for shareholders. It provides significant significant upfront cash proceeds with minimal expected tax impact, which can then be deployed in line with our strategic priorities.

And so does some of that carry into next year.

Yes.

Okay, and then I guess maybe out of.

Ed Breen: It also provides an opportunity for us to participate in future upside returns upon the exit of our retained interest in Delrin. TJC has an excellent track record of creating value and we look forward to leveraging their talent and focus to continue to grow the high quality Delrin business.

Yes.

<unk> spread will continue into next year with the caveat that we don't quite know to Ed's earlier comment what the price is going to do but we do expect that deflation benefit to continue because it took its time to get through inventory. This year got it and then.

Ed Breen: Thank you very much for your time. [inaudible] we are very focused on operating discipline, and we are very focused on operating discipline, and we are very focused on operating discipline Partially offset by lower endpoint costs related to raw material, logistics and energy, along with the portfolio benefits and spectrum. Operating EBITDAB margin during the quarter of 25.3% was down 50 basis points versus the years of periods driven by volume pressure in the high margin semi-business and reduced production rates primarily within the E&I segment.

Just kind of a philosophical question on how you think about next year I mean, your exit rate now on some of these businesses just from a revenue perspective is.

More negative.

Taking revenue down.

You talked about some of it being destock, which is effectively.

An easier comp next year in the second half of the year I mean.

Do you think with this profile that you guys can still grow revenues next year.

Ed Breen: Offset partially by cost situation benefits. It's increased somewhat from second quarter. On sequential basis operating EBITDAB was up 5% and operating EBITDA margin improved 140 basis points. Decormental margin for the quarter was 31% enabled by cost situation and aggressive actions taken near the date to reduce spending. As I mentioned earlier, I am pleased with our cash loan improvement during the quarter. Optimizing working capital performance continues to be a top priority for us.

Ed Breen: On a continued operation basis, cash flow from operations of 740 million less capital expenditures of 119 million resulted in adjusted free cash flow of 621 million in the third quarter. A 45% increase versus the years of periods. Adjusted free cash flow conversion during the quarter was 151%, an increase versus last year and much improved compared to the first half of this year. Decorantly expected to finish the year with conversion around our target as level of 90%.

Lori Koch: Turning to slide 6, adjusted EPS for the quarter of 92 cents a share increased 12% compared to 82 cents in this year go period. The low-to-line benefits, including combined 16 cent benefits related to the lower share count and lower net interest expense, more than offset lower segment earnings. Other below-to-line benefits, including a lower tax rate and lower foreign exchange losses, contribute 6 cents to adjusted EPS improvement versus the year go period.

Yes, Yes, I think I think the first quarter, Steve to your comment will be.

Lori Koch: Our tax rate for the quarter was 24.6% down from 26.2% in the year go period driven by the impact of a wait-through-up in the year go period and lower than our previously communicated modeling guidance as the street tax had went to lower than expected.

Right.

More similar to the fourth quarter close I don't think the Destocking will end, but that work, but the distributors will move very fast, but they just stop order it for a while.

We've talked directly to them and they just don't shouldn't be something for a few months and then we'll be back on track so.

So yes, I think first quarter will be on the light side that I think after that we will see some nice lift I would certainly by then the electronics part of our business, which you know is highly profitable I think we'll be back to a.

Lori Koch: Our expectation of a full year 2023 base tax rate of 24% remains unchanged.

A really nice lift.

Just on the semi side the Fabs are running a little below 70% utilization I think if you do the math on what the industry is thinking theyre going to trying to get up as the year goes more to 80% utilization. The following year more like 90%, where you would run on that.

Lori Koch: Turning to segment results, beginning with E&I on slide 7. E&I third quarter net sales of 1.4 billion decreased 9% as organic sales decline 13% offset partially by a portfolio benefit of 4% from the spectrum acquisition. The organic sales decline reflected a 12% decrease in volume and a 1% decrease in price.

So youll start to see some on a percentage basis, some pretty nice lift in that we've had two quarters in a row of Ics lifting so it's clearly off the bottom.

Lori Koch: At the line of business level, organic sales for semiconductor technologies were down high teams versus the year go period, resulting from a continuation of inventory desocking across the channel and to a lesser extent ongoing week and market demand and the impact of China trade restrictions. On a reported basis, semiconductor technology sales were flat sequentially in the third quarter. With an interconnect solution, organic sales declined 11% year over year due to both volume and price decline driven by the pass-through of lower metal. Allurene continued to be impacted by weak smart-zone PC and tap with demand, particularly in China, along with more moderate inventory destocking, which we believe is largely complete.

That will I think continue to grow as we go through next year. So I think you are kind of through the electronics one.

Lori Koch: On a substantial basis, the Interconnect business reported a second straight quarter of sales improvement with the sales of 8% driven by seasonality as well as some underlying demand present within PCB markets. Organic sales for industrial solutions were downsized in single-digit versus the year-go period, due primarily to destocking within biopharm adaptations for a living of product lines and continues lower demands in a much tronically-related end-market. These declines were partially offset by increased demand for OLED display materials, operating EBITDA for E&I of 383 million with downed versus the year-go period, primarily due to volume declines and lower operating rates to better align inventory with demand, slightly offset by a portfolio benefit.

Although we're kind of now doing a destock on the <unk> side, and remember were mostly short cycle. So.

Lori Koch: That related to spectrum, operating EBITDA margin increased 140 basis points to crunchyly during the third quarter.

We'll see it first and then.

By the second quarter, Youll see a lot of that destock over with and Youll see the volume lift.

And one last one for you <unk>, yes.

<unk> been through a few cycles.

Dupont, having I guess high single digit Steven.

Stephen double digit organic volume declines I mean are we are we already.

In a recession here in your mind.

One foot in yes, I've been there for a wildfire, Hawaii I track a lot of economic indicators as I said earlier when you see the yield curve, where it's been and all theres always been a recession. So.

Lori Koch: Turning to slide 8, WNP third quarter net sales of 1.4 billion declined 8% versus last year, as volume decline of 9% was slightly offset by a 1% increase in price due to the carry-over impact of actions taken last year. Within safety solutions, organic sales were downsized in single-digit, due primarily to channel inventory destocking. Shelter solution sales were downsized in single-digit on organic basis, driven by continued demand softness and construction markets, and ongoing channel inventory destocking.

Lori Koch: On a sequential basis from the second quarter, shelter sales increased slightly and the expected narrower year-over-year declines in fourth quarter. Organic sales for water solutions were downed single-digit versus the year-go period, due primarily to inventory destocking, including which distribute our customers and lower industrial project demand in China, naming impacting reverse osmosis. The expect generally flats a bunch of volumes in the fourth quarter versus the third quarter. Operating evit, for WNP during the third quarter of 362 million decreased versus the year-go period due to lower volume, partially offset by the impact of net pricing benefits.

I like the management.

I guess conservatively, so I have been telling the team for a long time, just prepare for a software environment and if we're wrong great.

Lori Koch: Operating evit, margin, a 25.6% increased 70 basis points year-over-year, and 100 basis points to crunchyly from the second quarter.

<unk> done all the right actions to position ourselves.

Sure.

Yes, I think there was this quarter just reading all the results from companies I saw they were they were pretty mixed.

Great. Thanks, a lot people, where people were mostly missing on the volume that novel in their EBITDA.

Alright, Thanks, a lot.

Okay.

Your next question comes from the line of Michael <unk>.

Your line is open.

Great. Thanks, Good morning, guys.

Good morning Bill.

On the Delaware and sale can you maybe speak to why this monetization structure was sort of the best Ultimate outcome, and then Relatedly maybe for Laurie.

Lori Koch: Turning to slide 9, I have a close with a few comments and what we are seeing in the fourth quarter and how that translates to our full year 2023 guidance. Underlying consumer electronics demand in the fourth quarter is expected to be generally similar to the third quarter, with some sequential sales was expected in semiconductor technologies. As mentioned earlier, we saw additional channel inventory destocking and slower industrial demand in China, mainly impacting water solutions compared to fire expectations, and we assume these same trends will continue through the end of the year.

Lori Koch: As a result of this incremental volume softness, we are adjusting our net sales and operating evit.guide and now expect full year net sales to be about 12.17 billion. Operating evit.guide at about 2.97 billion, which is at the low end of our prior brain.

Lori Koch: For the fourth quarter, we expect net sales of approximately $3 billion, with its potential decline versus third quarter driven predominantly by additional inventory stockings in the safety solution sign of business, and to lesser extent by the impact of seasonality and incremental currency headlin.

Should we expect a note receivable to accrue or I guess, when do you get that $350 million in cash.

Lori Koch: We expect full year 2023 adjusted EPS to be approximately $3.45 for shares, which is the midpoint of our prior guidance range.

Chris Mecray: With that, we are pleased to take your questions, and let me turn it back to the operator to open the Q&A soon. At this time of it, let's remind everyone in order to ask a question, please press star then the number one on your telephone keypad. In the interest of time, please keep to one question and one follow up question per person, or pause for just a moment to compile the Q&A roster.

Yes. So so we like that look we sold double rent in a tougher environment.

Then when we sold the rest of Eminem.

Unknown Executive: Your first question comes to line of just for a virtual research partners, vertical research partners. Your line is open. Thank you.

So this optimized what we could get for the asset over a few year period, we're getting one to some billion dollars upfront.

Ed Breen: Good morning, everyone. Good morning, Ed. A lot going on in these channels, obviously. Do you have any kind of sense, or how do you measure kind of your cell in versus cell through, trying to kind of understand, kind of what that incremental headwind is from inventory versus just kind of general demand trends, and maybe just a little bit of color on how much more you might have to do on inventory or production to kind of get things where you needed to be balanced out.

We're riding 20% equity in it.

T. J C has a phenomenal track record. So my gut is we have some nice upside coming from the retained interest that we have in the business that has to be proved out but.

Highly confident then that it is it is a good business it should do well over the next few years. So we think that optimizes our position. So we sold it at $1 8 billion in value.

Ed Breen: Yeah, Jeff, so we did a pretty detailed analysis of it, and I think a good way to look at it is what is our distributor customer is doing versus our direct end customers. So maybe just to give you a couple of numbers on the W and P side of our business, about 50% of our volume goes through distribution and the other 50% we sell direct the customers. And so we did a whole analysis, obviously, because you know the distributor, you can see quick what's going on with them and almost across the board that distributor network is destocking pretty broadly.

My gut is we can end up nicely above that with the equity that we have so.

And by the way it just goes to our whole capital allocation strategy. It was not a business we want it to be in long term, even though it's a good business, although we're taking the volatility out of the portfolio.

And we'll redeploy that cash and as we said in our prepared remarks, we will actually do more share repurchase after the ASR rents next year, because we're in a great balance sheet position and we'll have good free cash flow and we plan on buying back more shares.

Yeah, and Michael on the debt. So we gave them a $350 million loan. It's an eight year low next day and show you where to go to that launch.

Normally they would monetize quicker than that then we would get get the repayment of the route and so if it went to the longest Paul it would be eight years, but.

Most likely not the reality.

Great. That's Super helpful. And then second I was hoping maybe you could give us a bit more color on the moving pieces within the corporate and other segment I assume the retained businesses are doing fairly well on the auto backdrop. So can you speak to what's kind of the moving pieces, there and should we expect that business to continue to deliver some level of double digit.

Ed Breen: And it's one of percentage basis down significantly more than our direct customers. So we just just won because it hit us this quarter, our water business in China, which is mostly reverse osmosis was down at 36% of it goes through distribution, the rest we sell direct the customers. But the third of our sales that go through distributors in China, it was down 36% through distribution was down about 12% direct to the customer base.

Ed Breen: So if you do that analysis in our safety business, you get very similar trends going on. So clearly the distributors are going through a destocking. And I'm sure as we're approaching your end everyone's trying to get their inventory is kind of where they want them. Now by way, having said that my take is that the destock obviously goes into the first quarter if we just started to see it in some of these W and P businesses.

Ed Breen: But I would think the distributors work it down, you know, fairly quickly, you know, after we're kind of exiting the first quarter. But that same trend applies almost across the board when you do that analysis. It's that the distributors are way, way down vis-a-vis the direct customer channel. Again, on the absorption question, we're still in the same general ballpark in the second half is where we were in the first half. There's a little bit of a mix and we'll be taking a little less absorption headwinds in E&I and a little more in W&T as we see that he sucks. Continue as we head into the fourth quarter, but in total, the numbers about equal to the first half. Right.

Ed Breen: And I wonder if you could give us a little color on restructuring also. And I think you mentioned 150 million run rate.

Ed Breen: I wasn't sure if that was a four year, 2024, but maybe just give us a sense of how much restructuring tail you have in 23, the incremental benefit you expect in 24. And as volumes kind of hopefully improve in the 2024, some of that just kind of discretionary temporary stuff that kind of comes back into the PNL. Yeah, so on an annual basis, Jeff will be about 150 million of savings, kind of spread between plant fix costs and functional costs are mostly GNA expense, not not touching our Indian, but I just the backup on that.

Millions of EBITDA.

Ed Breen: Lori and I have been looking at this kind of how we can do some restructuring for over a year. So we're not doing it just in response to what's going on. I think I would settle on other earnings calls. We started looking at it actually a summer ago. How could we stream on a little bit more? So we're ready with that. We'll start seeing the benefits of the restructuring in the towards the tail end of the first quarter.

Yes so.

The business is just for a refresher that are incorporate our primarily the Io adhesives business and then we have cadbury multi base, but the largest end market served is.

Is automotive and Theres a large exposure there. So we saw a nice mid single digit volume growth again, and we expect for a full year from a volume growth perspective.

Yes, I know he says to grow up in the high single digits and we continue to expect a really great things from that business with the EV penetration that HPE sales from an earnings perspective, they were up very nicely as well we saw a nice earnings growth and margin appreciation in the third quarter.

In the fourth quarter, we have a little bit of a of a.

Deceleration gets a lot of their exposure is in the U S with automotive. So there is some headwind from the strike that Fortunately is now over but that will be a little bit of a headwind from the October impacts and then the U S farm belt right now from IHS are expected to be to be down but overall the trajectory of this business is really strong they had a great 2023.

We expect a really strong 2024 again.

Ed Breen: We'll get going on it by the middle of December. So, you know, by time it hits, we get things going. You'll start to see the benefit then. So you'll kind of get three quarters of the benefit for a big chunk of that in 2024. A little bit of that would potentially come back on the fixed costs, the plant fix cost side is volumes pick up but not all of it. So you get a little bit of it coming back in as we see the volumes left.

Great. Thank you.

Thank you.

Ed Breen: But that's basically the program.

Your next question comes from the line of John Mcnulty of BMO capital markets. Your line is open.

Unknown Executive: Great.

Yes, Thanks for taking my question so it looks like the.

Unknown Executive: Thank you. Thanks, Joe.

The electronics end market seem like they are starting to stabilize a little bit you expect semi technologies to be up quarter over quarter can you add some color on what you expect from the other two subsectors in the Eni Division do you see normal <unk> seasonality is there maybe a little bit of Destocking in the industrial solutions side I guess can you help us to think.

Scott Davis: Your next question comes to line of Scott Davies. Emily's research. Your line is open. Hey, good. Good morning, everybody. Good morning. A couple of things. I mean, just to follow up on Jeff's question because it just seems like it's so important and tactical for you guys. I mean, there's kind of two reasons why people destalk inventory, right? I mean, one is maybe lead times come down and they feel like they can get it fast and two is they're really worried about their customer is not wanting product.

Scott Davis: And I'm talking at the distribution level. I'm not sure direct. What? What do you think? You know, what do you think of the main drivers of this kind of incremental because we've been talking about the inventory destalk for several quarters now. And this quarter seemed like it almost got a little bit worse, particularly in water protection.

Ed Breen: Yeah, you know, Scott, I just give you a part of my thinking. I think two thirds of it or 75% something like that is really that the supply chain healed itself. It's pretty darn normal for everybody again. So everyone sat on excess inventory. I mean, look, we're doing the same thing. We had 151% cash conversion. We're lowering our inventory levels because we have built up more than we normally would during COVID.

Ed Breen: And every OSCEO I talked to is doing the same thing. So. And by the way, I think it's the pressure you're getting near the end of your year here, really trying to get things in line for 2024. So I think a big part of the fact, but there certainly is a percent of people just more worried is there a recession coming. You know, you got an inferred yield curve for 18 months.

Ed Breen: People start getting nervous. There's always been a recession. So I can't say that's not it. If that's in there. But I think the bigger part of it is we just all build excess inventory. You know, we got what we could get. You know, during COVID. And by the way, I give you one example because we're seeing some destalking on the metal packaging side. A year ago, I had most of the CEOs of the medical device companies personally call me pleading that we could ship more Tyvek material for packaging so they could ship their products out.

To think about the trends there.

Yes, so semi.

We will lift a little bit so I would still say bouncing along the bottom, but getting through the destock and when I say, a little bit a few percentage points sequentially.

Ed Breen: And I remember telling them all fact I sent a letter to the trade industry. I said, our shipments to you are up 18% so far this year. I mean, I can't do much more. And you know, that was everyone scrambling to get it and then they overshot. And now I probably shouldn't be surprised we're seeing some destalking on the medical packaging side. So I think that's just a great example. That has nothing to do with a recession. That's just everyone had too much. Yeah, that's a great color and makes a lot of sense.

Often the business the Ics business.

I'll be down some but thats all seasonality if you look at it just the normal drop you see in seasonality. It's less so that the business continues may be a few more points to improve after the last two quarters of improvement.

Kind of less seasonality because the business is recovering and then on the industrial part of Eni.

Ed Breen: I want to ask about price and I know that two segments are just way different. E and I kind of manage price versus cost and W and P maybe there's a little bit of a different price strategy. But when you think about like this, this new normal of higher inflation wages, other costs, you know, not not not explicitly material costs but other costs. How do you think about price and kind of a future construct, meaning maybe entering into 2024?

We'll definitely see a little bit of Destocking, there the biopharma destocking, which is in that business picked up some during.

The quarter, so I expect that to continue into the fourth quarter and hopefully be done by them with that and there was just a little bit of other destocking going well, but some of our distributors in that business.

So nothing significant but I think that will see a little bit of softness.

Got it okay. Thanks, and then maybe just as a follow up I think as we get to kind of mid December the opt out period should be kind of done on the on the <unk> side I guess can you give us any update on the water district.

Ed Breen: It's probably more about valid question for W and P, but maybe you can address for both segments and give us a little bit sense of what. Yeah, I don't think yes. I don't think 2024 will be what you'd consider a normal year and then in a normal environment, you know, a few years in a row, just normal things which we haven't had in four years and for anybody. I would we would always get like one and a half to two percent price lift in the W and P business.

Water District settlement is there anything that you can speak to at this point it seems like that should put a lot of a lot of kind of the pressures behind you, but I guess any update there would be would be helpful.

Yes, so we did.

The data that's coming up here is the deadline for the opt outs as December 4th.

Ed Breen: Our goal in 2024 is to hold on to as much pricing as we can and you obviously see us and others were getting benefit from price costs spread and we saw it in the third quarter, which helped us out. We'll obviously see it in the fourth quarter. So our goal is to really manage that well for 2024 because there's still, you know, quite a bit there. Now we're not going to get all the cost back by renegotiating contracts.

And then we will see a list of who the opt out or opt outs are on December six and then there is a final fairness.

Hearing on the spin.

South Carolina, one December the 14th so it's all kind of happening in that first two weeks of December and I really can't add any other color I just don't have any other facts in front of me, we're feeling obviously very good about the highly confident.

Ed Breen: Everyone's trying to hold price of our vendors are trying to hold it too, but, you know, we're still up to about 225 million that we've gotten back that we so that I mean, that's pretty significant for us. And so we're hoping to hold that for next year. I might gut is we're going to give up some pricing and the shelter business because we don't want to lose market share. But a lot of the other businesses will really be managing that slightly.

This will get signed off and get done and Barry I'll just add obviously.

People are talking to the key water districts around the country. So.

Yes.

Good and hopefully we're close to getting that cemented.

Great. Thanks, very much for the color.

Yes. Thanks.

Your next question comes from the line of David Begleiter of Deutsche Bank. Your line is open.

Ed Breen: But then if we ever get we get back to normal time, so fully 2025, we would look at that one and a half to two percent price increase and then electronics, we just try to hold up, you know, about flat. Usually we're flat to down one percent, but you get nice volume left. Good color. Thank you. I'll pass it on and appreciate it.

Thank you good morning, Ed.

Good morning on the restructuring do you have any more.

Any more color you can provide some more concrete examples of where that 150 is going to come from.

Unknown Executive: Thank you.

Yes. So we had mentioned that it will primarily come from plant fixed costs, and then the G&A or the functional costs to the overhead structure at the company. So the plant fixed costs. It really a function of the destocking and what we can do.

Steve Tusa: Your next question comes to line of Steve Tusa of JP Morgan. Your line is open. Hi, good morning. Good morning. Can you just update us on what you actually expect for what was the price cost spread this quarter and what do you expect now for the year? Yeah, so our full year number, we checked up to 225 million versus the last quarter we had expected about 140 million. So we're seeing that distillation benefit.

From a volume perspective, so looking hard at contractors looking hard at the plant fixed costs that looking hard at making sure that we can temporarily adjust our cost structure to align with the volume environment that we're seeing and then on the kind of the SAR side or the functional costs general and administrative that ship.

So as Ed mentioned, we're constantly working to make sure that we're running as lean and efficient organization as possible. So that's where the focus will be really won't be touching R&D and marketing and sales. So we believe that's it.

Steve Tusa: I'm through in the back. So in the third quarter we saw net about 75 million benefit. We'll see that check out to around the 100 million in the fourth quarter. And so does some of that carry in the next year? Yes. Okay. And then I guess the spread will continue into next year with the caveat that we don't place no to as earlier comment what the price is going to do. What we do expect the distillation benefit to continue because it took its time to get through inventory this year. Got it.

This destocking period is temporary until we really need to be prepared when it comes back on the other side, we're going to take advantage of the upside for that brand will be the focus would be more on.

Plant costs.

Functional spend.

Understood and then just on our Interconnects in semis did you gain any share this year or is there any new technology.

Products pipeline that you think can grow share this year or next year.

Ed Breen: And then just kind of a philosophical question on how you, you know, think about next year. I mean, your exit rate now on some of these businesses just from a revenue perspective is, you know, more negative that you're taking revenue down. You talked about some of it being destock, which is effectively an easier comp next year on the second half of the year. I mean, do you think with this profile that, you know, you guys can still grow revenues next year?

Yeah. So there's examples in both so within semi is really around the packaging side, we've seen some nice share gains.

And I'll say just in general we've seen.

Uptick on the advanced node components since if you actually look at our performance in the quarter, we had nice growth with TSMC as they continue to expand.

They are advanced and we can take advantage of the AI.

AI Revolution. So we saw nice growth on the SME side, and then within Ics.

Ed Breen: Yeah, yeah, I think I think the first quarter, Steve, to your comment will be light, you know, more similar to the fourth quarter, because I don't think the D-stock will end, but the distributors will move very fast. They just stop ordering for a while. You know, they literally we talked directly to them, and they're like, just don't shoot me something for a few months, and then we'll be back on track. So, so yeah, I think, you know, the first quarter will be on the lights five.

A new application with one of the large smartphone segment.

Which took advantage of it as a material that crossover metallization business.

Today to be able to have a key win there. So that that was part of the sequential growth that we saw in the quarter and we continue to see if it's on every single model of the pound.

And then one producers with an ice benchmark.

Thank you.

Mhm.

Ed Breen: But I think after that, we'll see some nice lift. I would certainly by then the electronics part of our business, which you know is highly profitable. I think we'll be back to, you know, a really nice lift. You know, just on the semi side, the fabs are running a little below 70% utilization. I think if we do the math on what the industry is thinking, they're going to kind of get up as the year goes more to 80% utilization the following year more like 90% where you would run a math.

Your next question comes from the line of Alex <unk> of Keybanc capital markets. Your line is open.

Thanks, and good morning, everyone. This is this is Robert <unk>.

My first question comes around the shelter solutions business just in terms of where do you think we are in the destocking cycle, there and demand and how good is your visibility into 2024 here.

Ed Breen: So, you'll start to see some on a percentage basis, some pretty nice lift. And then we've had two quarters in a row of ICS lifting. So, it's clearly off the bottom. You know, that will, I think, continue to grow as we go through next year. So, I think, you know, you're kind of through the electronics one. Although, you know, we're kind of now doing a destock on the W and P side.

Yes, so we saw less of a year over year headwind in shelter in the third quarter versus what we saw in the first half that we feel like things are starting.

To normalize a little bit and then our expectations for the fourth quarter or just the less volume declines that <unk> seen year to date. So it feels like things are normalizing a little bit.

Ed Breen: And remember, we're mostly short cycles. So, you know, we'll see it first. And then, you know, I think by the second quarter, you'll see a lot of that destock over with. And you'll see the volume list.

Obviously, there is a little bit of disparity from a market perspective between the red and the commercial side.

A lot of that.

Steve Tusa: That one last one for you. I mean, you've, you know, you've been through a few cycles, Dupont having, I guess, high single digit to even double digit organic volume declines. I mean, are we, are we already, you know, in a recession year in your mind? I'm kind of one foot in. Yes, I've been there for a while. By the way, I track a lot of economic indicators. And I said earlier, you know, you see the yield curve where it's been and all there's always been a recession.

Growth it was on the commercial side is more in commercial applications, where we don't have a big footprint like for example around the data centers them our exposure in commercial and it's more around.

Education, and healthcare and government, where there hasn't been that step change benefits that we have been more on the on the data center side, but in general it feels like we're nearing the end of the significant downturn, we expect that.

<unk> in the fourth quarter to be more down in the mid single digits versus the double digits that we've seen all year. So it feels like it's starting to normalize and we do believe the destock is now behind us. So now it's just a function of when the demand returns.

Steve Tusa: So, I mean, I, I like the management. I guess conservatively. So I've been telling the team for a long time, just prepare for a softer environment. And if we're wrong, great. You know, we'll have done all the right actions to position ourselves. But, yeah, I think there's this quarter just reading all the results from companies. I stole they were, they were pretty mixed. Right. Great. Thanks a lot. And people were, and people were mostly missing on the volume that not only read it up. Right. Yep. Thanks a lot.

Unknown Executive: Okay, Steve.

Okay very helpful. Thank you and then.

Just a question for me.

You mentioned, China trade restrictions and the impact it had on the semiconductor technologies business wondering if you might be able to quantify that impact there and then just.

Any updated view.

On the recently announced.

Sections there. Thank you.

Yes, so no change to our current view of about $60 million of a revenue headwind from the exposure so a lot of credit.

Michael Lee: Your next question comes from a lot of Michael Lee of pocket. Your line is open. Great. Thanks. Good morning, guys. Um, Ed. Born on the Del, on the Delrin sale.

For the year, yes, it's about $15 million a quarter so.

A lot of the restrictions that or more in the advanced node spaces.

Ed Breen: Can you maybe speak to why this monetization structure was sort of the best ultimate outcome. And then relatedly maybe for Lori, when should we expect the note receivable to a crew or I guess when do you get that 350 million in cash? Yeah. So, so we, we like that. Look, we sold Delrin in a tougher environment. Then when we sold the rest of them and them. So this optimized what we could get for the asset over a few year period.

We don't have a huge footprint with the Chinese players from that perspective, so it's only about $60 million Brad.

Your next question comes from line of Josh Spector of UBS. Your line is open.

Yes, hi, thanks for taking my question.

I just wanted to ask on the fourth quarter I mean, it kind of seems like the possible that around the different areas in terms of destocking, but if I heard you right. Your sales guidance is kind of flattish in the different segments sequentially Denny's is picking up which has the highest drop through and you're expecting some higher raw material benefit.

Ed Breen: You know, we're getting $1.2 some billion up front. We're riding 20% equity in it. DJC has a phenomenal track record. So my gut is we have some nice upside coming from the retained interest that we have in the business that that's to be proved out. But I'm highly confident in that. It is it is a good business. It should do well over the next few years. So we think that optimizes our position.

So what would drive EBITDA down sequentially 2000, $25 million versus flat to up.

Yes, so we see the underlying revenue down about $100 million once you're on an organic basis. So we will get another quarter under spectrum.

Ed Breen: So we sold it at 1.8 billion in value. My gut is we can end up nicely above that with the equity that we have. So. And by way, it just goes to our whole capital allocation strategy. It was not a business. We want it to be in long term, even though it's a good business. We're taking the volatility out of the portfolio. And you know, we'll redeploy that cash. And as we said in our prepared remarks.

First third quarter, but if you take that out we see underlying organic revenue down about $100 million. So it's about split between seasonality and currency being about half of the headwind with the seasonality being within that primarily the smartphone and consumer electronics business in Ics and shelf earthquake as Sri.

Throughout the summer months, and then currency, we do see is a bit of a headwind sequentially and then the other.

Ed Breen: We will actually do more sharing purchase after the ASR ends next year because we're in a great balance sheet position and we'll have good free cash flow. And we plan on buying back more share. Yeah, and Michael on the deck. So we gave them a $350 million loan. It's an eight-year loan, it's the ensure we're to go that long. So like, you know, normally they would monetize quicker than that, and then we would get the repayment of the loan. So if it went to the longest goal, it would be eight years. But it's most likely not the reality. Great. That's super helpful.

<unk> of it is from the medical packaging piece that net.

I mentioned earlier, so we do see some.

Medical packaging pullback.

In the fourth quarter as those device makers destock from from nearby tap into Capex.

Over the recent quarters.

So it's really just and then the EBITDA you have a net benefit from additional spreads we had mentioned theres about $25 million of additional benefit from spread but that $100 million impact from the volume declines and a net you out today around the 60 that we guided to for the for the fourth quarter versus the second 75 that we posted.

Lori Koch: And then second, I was hoping maybe you give us a bit more color on the moving pieces within the corporate and other segments. And I assume the retained businesses are doing fairly well in the auto backdrop. So he speaks to what's kind of the moving pieces there. And should we expect that business to continue to deliver some level of double digit millions of EBITDA? Yeah, so the business is just for refresher that are in corporate, or primarily the auto adhesives business.

Sorry go ahead.

Yeah.

Okay. Thanks, I appreciate that and I mean, just a few.

Back to electronics and semi is I think you said.

<unk> rates in the mid <unk> I think we maybe trough in the high <unk>. So you guys haven't really felt as much of that pick up I guess as you look at things improving how much is semi is reconnecting your business year on year, just from a reconnection to where the rate is now I mean is that mid single digits or higher just on where we are.

Lori Koch: And then we have Kedlar in multi base, but the largest and market serve is is automotive. And there's a large EV exposure there. So we saw nice. It's single digit volume growth again. We expect for a full year from a volume growth perspective that the auto he says to grow up in the high single digits. And we continue to expect really great things from that business with the EV penetration that we've seen.

Run rating now past inventory or is it would be a different math to get to a different level.

Well the Fabs have been to your point had been running kind of if you lump them altogether.

Lori Koch: So from an earnings perspective, they were up very nicely as well. We saw nice earnings growth and margin appreciation in the third quarter. In the fourth quarter, we have a little bit of a of a deceleration. Just a lot of their exposure is in the US with automotive. So there's some headwind from the strike that fortunately is now over, but there will be a little bit of a headwind from the October impacts.

I think you would average out in the high <unk> and I think if you go through.

All the projections out there and I was talking to our customers that <unk> got a ramp through 2024 up to us by the time you get maybe end of third quarter, beginning of fourth quarter up to maybe a little over.

Lori Koch: And then the US car built right now for my chest are expected to be to be down, but overall the trajectory of the systems is really strong. They had a great 2023 and we expect to really strong 2024 again. Great.

80%, 80% so.

So you still won't be back according to projections kind of over 90%. So you enter into 2025, but again going from high 60% to 80% is a nice lift during the year and then.

Unknown Executive: Thank you.

More of that production will be advanced nodes, which back to Larry's point a minute ago plays to our strength.

John Mcnulty: Your next question comes from a line of John McNulty of BMO capital markets. Your line is open. Yeah, thanks for taking my question. So it looks like the you know the electronics and market seem like they're starting to stabilize a little bit. You expect semi technologies to be up quarter over quarter. Can you add some color on what you expect from the other two sub sectors in the E and I division.

That's usually why we outgrow two to 300 basis point, what the market is doing but it's also by the way you also got to look customer by customer on the semi cycle. Some are still ship, we're shipping out of inventory, but all the signs I saw from all their reporting publicly they're started they've seen their bottom it looks like pretty much across the board.

John Mcnulty: Do you see normal four Q seasonality? Is there maybe a little bit of destock in the industrial solution side? I guess can you help us to think about to think about the trends there? Yeah, so semi will lift a little bit so I would still say bounce along the bottom but getting through the destock and I say a little bit you know a few percentage point sequentially up in the business. The ICS business will be down some but that's all seasonality.

Lord.

But I don't think the lift will be dramatic in the.

At the beginning of the year, but I think as the year sequences will see nice lift occurring in that business.

Okay. Thank you.

Yes. Thanks.

Your next question comes from the line of Vincent Andrews of Morgan Stanley. Your line is open.

Hi, Thank you a.

Couple of questions here first on <unk>.

The distributor part of the supply chain not just for you, but for pretty much everybody seems to have taken it more on the chin with the Overstocking in the and then the Destocking.

John Mcnulty: If you look at it, just the normal drop you see in seasonality. It's less so that the business continues maybe a few more points to improve after the last two quarters of improvement. So kind of less seasonality because the business is recovering. And then on the industrial part of E and I will definitely see a little bit of destocking there the bio farm at destocking, which is in that business picked up some during the quarter.

Do you have a sense of whether that was just a little too overzealous with principal risk.

<unk> and then on the way back down is the issue just that they don't have the same access to credit or just the higher to higher rates and I guess, what I'm getting at is is do you think over time your terms with distribution and maybe some of your other customers youre going to need to change.

In a way that might require you to hold more working capital or two to give them incentives.

John Mcnulty: So I expect that to continue into the fourth quarter and hopefully be kind of done by them with that and there's just a little bit of other destocking going on with some of our distributors in that business. So you know nothing significant but yeah, I think that'll see a little bit of softness. Got it. Okay, thanks.

Move it along and I guess, I'm, just sort of asking what whats going on whats going to whats can ultimately break the logjam of the game with hot potato of nobody wanted us to hold inventory.

Yes, I don't think its I really think it's just we all overbuild inventory.

John Mcnulty: And then maybe just as a follow-up, I think, you know, as we get to kind of mid-December, the opt-out period should be kind of done on the PFAS side.

Direct from vendors and distributors through the Covid period, I mean, we all talked about it.

Ed Breen: I guess, can you give us any update on the water district settlement? Is there anything that you can speak to at this point? It seems like that should put a lot of, a lot of kind of the pressures behind you, but I guess any update there would be, would be helpful. Yeah, so we, the date that's coming off here is the deadline for the opt-out, is December 4th. And then we will see a list of who the opt-out are on December 6th.

And I go back to my example, on the Marriott medical packaging side customers.

<unk> for us to get more to them and usually when that happens you see an overshoot happen.

Some of them, probably even double the water I have been through that before.

My career in and then you get the snap back so I think that's what we're going through as they are adjusting.

Their inventory back to appropriate levels, they don't have to worry about carrying excess inventory.

Because supply chains are normalized again.

Ed Breen: And then there's a final fairness hearing on December 14th, so it's all kind of happening that, you know, first two weeks of December. And I really can't add any other updates. The color, I just don't have any other facts in front of me. We're feeling obviously very good about it, the highly confident that this will get signed off and get done. And I just add, obviously, people are talking to the key water districts around the country. So, you know, we're feeling good and hopefully we're close to getting that cemented.

And again, we're doing the same thing we're feeling confident about.

Being able to get supply of all our different components and so we're working our inventory levels down from what were elevated levels will be closer to the COVID-19 stuff.

I don't think we will have to worry about different terms or anything with the with our distributors.

Okay. Good to hear Lori can I just ask you what is it what's the updated thoughts on minimum cash levels that you want to keep just as we think about next year and your free cash flow generation versus what you might do from a share repurchase perspective.

Yes, I will start still target about 1 billion and a half.

Unknown Executive: Great. Thanks very much for the color. Yeah, thanks.

Minimum cash levels as we had mentioned on the call. We will look to return a significant portion of our cash flow to shareholders next year through share repurchases. So we'll be done with the existing ASR at some point later in the first quarter and then that will give us the ability to get back into the market underneath that new program is.

David Bickleta: Your next question comes to line of David Bickleta, update the bank. Your line is open. Thank you.

Lori Koch: Good morning. I'm Ed Lloyd. The other more, you know, any more colleague can provide some more concrete examples of where that 150 is going to come from. Yeah, so we had mentioned that it'll primarily come from plant fixed costs and then the GNA or the functional cost of the overhead structure of the company. So, you know, the plant fixed costs is really a function of the destocking and what we can do.

Lori Koch: From a volume perspective, so looking hard at contractors, looking hard at the plant fixed costs and looking, looking hard at making sure that we can temporarily adjust our cost structure to align with the volume environment that we're seeing. And then on the on kind of the start side or the functional cost general administrative that's just continued leaning out. So as I had mentioned, we're constantly looking to make sure that we're running.

As Ed had mentioned we have the <unk> proceeds coming in at some point today and still have that cash come in the door and then were.

In an open window again, we will be able to do more share repurchase.

Okay, great. Thanks, so much.

Okay.

Your next question comes from the line of Frank Mitsch Fermium Research. Your line is open.

Good morning.

I wanted to follow up on Hey, How're you doing one I wanted to follow up on on spectrum, you indicated that financially it was performing.

In line with your projections I was just curious I think.

Lori Koch: Is lead in an efficient organization possible. So that's where the focus will be. We really won't be touching R&D and marketing and sale. So, you know, we believe this. This destocking period is temporary. And so we really need to be prepared when it comes back on the other side. I'd be able to take advantage of the upside. So that really won't be the focus to be more on on the plant cost and the functional spend. Understood.

You indicated that you expected like something like $45 million of EBITDA for the balance of 'twenty three.

Since you've closed on <unk>.

Ed Breen: And I just don't know interconnects and some ways. Did you gain any share this year or is there any new technology products kind of pipeline that you think can grow share this year or next year? Yeah, so there's examples in both. So within semi really around the packaging side, we've seen some nice share games. And also just in general, we've seen an uptick on the advanced new components. And so if you actually look at our performance in the quarter, we had nice growth with GSMC as they continue to expand.

Ed Breen: Their advanced nodes and take advantage of the AI. AI revolution. So we saw nice growth on the semi side. And then within ICS. We had a new application was one of the large smart phones that do service, which took advantage of a material that crossed over our metalization business to be able to have a key win there. So that that was part of the sequential growth that we saw in the border and we continue to see it's on every single model of the phone. But the one producer so it was a nice win for. Thank you.

Idea of the.

Ah the size that that you anticipate AI to grow to over 2024 2025 in terms of your stomach conductor business.

Aleksey Schumer: Your next question comes to Ryan of Aleksey Schumer of Keyblunk Capital Markets. The line is open. Thanks, and good morning, everyone. This is Ron from Aleksey.

Well <unk>.

Frank.

High level I think a lot of the girls will get will allow the semiconductor business again once we get through this downturn here and all that but this business can grow kind of mid to high single digit which by the way it was doing before all that.

Aleksey Schumer: My first question comes around the shelter solutions business, just in terms of, you know, where do you think we are in the de-stocking cycle there and demand and then, you know, how good is your visibility into 2024 here? Yeah, so we saw less of a year earlier had went in shelter in the third quarter versus what we saw in the first task that we feel like things are starting to normalize a little bit.

<unk> again in the area of the market grows five to six to seven points will grow two to 300 basis points above that in two to 300 basis points is mostly because of that high end ship because a day I enabled it and all that and you know that place to our sweet spots. So that's how we get that outsized growth usually over.

Aleksey Schumer: And then our expectations for the fourth quarter are to see less volume declines that we're seeing year to date. So it feels like things are normalizing a little bit. But, you know, obviously there's a little bit of disparity from the market perspective between the Rezzi and the commercial side. A lot of the growth that was on the commercial side is more in commercial applications where we don't have a big footprint, like, for example, around the data centers art, those are in commercial was more around education and health care and government where that hasn't been that step change.

The market and a I plays right into that.

Yeah, just to help this is it for you to stay within our standing portfolio.

That is 700 million dollar business and data centers overall it about it a little.

No more than a third of that is correct.

So that's <unk>, that's a nice person that we can continue to see about the overall M S projections.

Very helpful. Thanks, so much.

Thanks, Rick.

Aleksey Schumer: So that's really been more on the on the data center side. But in general, it feels like we're nearing the end of the significant downturns. We expect the volumes in the fourth quarter to be more down in the mid-single digits versus the double digits that we've seen all year. So it feels like it's starting to normalize and we do believe a de-stock is now behind us. So now it's just a function of when the demand returns. Okay. Very helpful. Thank you.

Your next question comes from out of Steven a bank of America. Your line is open.

Alright, you rock off and on for Steve Burn just going back to the spectrum business now that you've had the business for a couple of months you see any opportunities for cross selling to these medical device companies.

Yeah that was one of the large species uhm the revenue synergy outside with that they are very strong and have great relationships on the medical device.

Aleksey Schumer: And then, you know, just a question from me, you mentioned China trade restrictions and the impact it had on the semiconductor technologies business. Wondering if you might be able to quantify that impact there and then just, you know, any updated view on the recently announced shortings there. Thank you. Yeah, so no change to our current view of about $60 million of a revenue headwind from the exposure. So a lot of our for the year.

Strong and have great relationships on my side, and how can we bring them to.

Two pieces together to generate revenue synergies. So it's been a couple of nights a Netflix thesis at least initially <unk> continues to play out.

And we don't have the revenue synergies on the hand, right now, but we see nice opportunity firstly.

And a great business days together.

That's great and then which of your businesses do you see the most potential for sure games and a new product introduction versus volumes that are driven primarily by circle recovers.

Aleksey Schumer: Yes, it's about 15 million forwarder. So a lot of the restrictions that more more than in the advanced node spaces that we don't have a huge footprint with the Chinese players from that perspective. So it's only about 60 million for us.

Yeah, I mean, I I think.

P. C. Please take it <unk>, we've mentioned that we should see two to 300 basis points about size market <unk> and that the combination of sharing and just bear exposure is an advanced here within the areas that are growing faster than others.

Josh Spector: Your next question comes from one of Josh Specter of UBS. Your line is open. Yeah, hi, thanks for taking my question. I just wanted to ask on on the fourth quarter. I mean, it kind of seems like the possible bit around the different areas in terms of de-stocking, but if I heard you right, your sales guidance is kind of flatish in the different segments sequentially. Then he's just taking up which has the highest drop through and you're expecting some higher raw material benefit.

And we also see that changed opportunity within the general consumer electronics space, we have seen some nice share gain unlimited location side. It will continue to show in a sharp line is that S. A P C b providers I'm sorry.

Start to ramp up their utilization reached a more normal level is that we have seen and we have seen our performance for a system that appears in the mail location space B B better Uhm and then within the W. P portfolio. We can set you just expect nice process and water obviously for any T stock right now, but we'll see nice breath.

Josh Spector: So what would drive you the down sequentially 20 25 million versus flat out. Yeah, so we see the underlying revenue down about 100 millions once you on an organic basis. So we will get another quarter of the spectrum business first third quarter. But if you take that out, we see underlying will bring a revenue down about 100 billion. So it's about split between seasonality and currency being about half of the headwind with the seasonality being within the primarily the smartphone and consumer electronics business and ICS and shelter as a.

More from a secular basis suggest that water industry is generally going into mid single digits, which is a nice market for us.

And on that.

The safety side, it's really gonna be we've added capacity now and we.

We'll get set change growth from utilizing that catastrophe.

Completion of an additional line for Ty Vac lead to constrain the tie that market for ears, and so we'll see some some nice lips are as we as we fill out that asset and with.

Josh Spector: It's a strength throughout the summer months and then currency we do see as a bit of a headwind sequentially. And then the other half of it is from the medical packaging piece that met Ed had mentioned earlier, so we do see some medical packaging pullback in the fourth quarter as those device makers. So it's a very risky stock from from the over by that's happened. For the recent quarters. So it's really just in the EBITDA, you have a net benefit from additional spreads.

Recently expanded.

Passing you within a new technology in the capital R space that with it it's a new opportunity for us to bring a lighter weight Kevlar supermarket, uhm and look for good things from that business as well.

Shelter generally should be more along.

G D P type grower.

Understood. Thank you.

Alright.

Josh Spector: We have mentioned there's about $25 million of additional benefit from spread, but that $100 million impact from the volume decline, kind of net you out to the surrounding 50 that we guided to for the for the fourth quarter versus the 75 that we posted in that third quarter. Okay, thanks. No, I appreciate that. And I mean, just a few kind of coming back to electronics and semis, I think as you said, utilization rates in the mid 70s, I think we maybe trough in the high 60s, but you guys haven't really felt as much of that pick up.

And our final question today comes from the line of <unk> of RBC capital market. Your line is open.

[noise] person.

Just wanted to take a.

Quick us try it maybe kind of mid cycle or longer term earnings growth.

[noise] about volumes kind of maybe double digits below normal in electronics, and then some leverage on a recovery there you're exiting the year at <unk> at around $3 billion of annual fees would that imply something in the three <unk> three 3.3 to 3.6 kind of range as far as <unk>. When you when you take a look at longer term it sorry.

Josh Spector: I guess as you look at things improving, how much of semis reconnect in your business year on year, just from a reconnection to where the rate is now. I mean, is that mid single digits or higher, just somewhere we're run rating now past inventory or is going to be a different math to get you a different level. Thanks. Well, the fact has been to your point, have been running kind of if you lump them all together.

Where where you want to get too thanks.

Yeah, I mean longer term.

You should you should get back into the fever running the Eni portfolio. Thank you for your your focus slice into more of the 32 per cent margin range and we should see.

The volume kind of return there over time is that utilization reset the large CCP guys in a semi guys were charge.

Josh Spector: I think you would average out in the high 60s. And I think if you go through all the projections out there and I was talking to our customers, bad high 60s is going to ramp through 2024 up to I by time you get maybe into third quarter, be in a fourth quarter up to. Of maybe a little over 80 80% so you still won't be back according to projections, kind of over 90% plan or into 2025, but again, going from high 60 to 80% is a nice lift or any year.

More near term as far as headwinds Tailwinds as we head into 2024, there's definitely tailwind from volume rose from the electronics recovery and normalization of the <unk>.

And there's obviously incremental challenge from the deflation we had mentioned as we go forward and then the benefit of the restructuring.

We are now taking and we're sorry to see the benefit of at some point later in the first quarter.

And then just from any P. S perspective, we do continue sabella our share account, so what we'll see lower fourth for it or share count versus the full year, which will carry us into 2024, and then we'll have the incremental benefit of the 2 billion program that will complete and the first floor and then advanced new shares.

Josh Spector: And then, you know, more of that production will be advanced notes, which back to Lori's point a minute ago, you know, plays to our strength, you know, that's usually why we outgrow two to 300 basis point what the market's doing. But you know, it's also, by the way, you also got to look customer by customer on the semi side, because some are still shipping, we're shipping out of inventory, but all the signs I saw from all they are reporting publicly, you know, they're started, they've seen their bottom, it looks like pretty much across the board.

Take out as possible see a nice EPS benefits that we've seen.

Alright, and we took took shares out throughout 2023 the.

Headwinds, though uhm are you know I think we will continue to see the industrial daysack impact the water and safety.

Merrily in the first quarter, so that'll be a headwind to the to the first quarter.

Uhm, we will see most likely some price modernization or give back it primarily in the shelter businesses that had mentioned so I will try it will try and maintain that as long as we can but we will be cognizant of a potential Sharon lessons potentially has to be giving some back there.

Josh Spector: But I don't think the lift will be, you know, dramatic in the, you know, at the beginning of the year, but I think at the year sequences will see nice lift occurring in that business. Okay, thank you. Thanks.

Vincent Andrews: Your next question comes along to Vincent Andrews of Morgan Stanley. Your line is open. Thank you.

And then just we have taken some aggressive actions on the compensation side in 2023, So we are paying a below target.

Ed Breen: A couple of questions here first on, you know, the distributor part of the supply chain, not just for you, but for pretty much everybody seems to have taken it more on the chin with the overstocking and then the destocking. Do you have a sense of whether that was that just they were little too over zealous with principal risk loading up. And then on the way back down is the issue just that they don't have the same access to credit or just the higher the higher rates.

Compensation.

This year, so we would most likely see normalization of that as we head into 2024.

So those are the big puts and takes with the one extra exception from a below the line perspective around interest income. So we did see about 145 million I'm interested in trying this year just as we help that.

The proceeds from them from them a lot from it felt celanese transaction in the first half before we get to play them to spectrum and the full share repurchase program. So we would we would see a step down in 2024 from interesting come from about 121 45. This year to probably 20 million next year.

Ed Breen: And I guess what I'm getting at is, is do you think over time your terms with distribution and maybe some of your other customers are going to need to change in a way that might require you to hold more working capital or to give them incentives to move it along.

Thanks.

Ed Breen: And we get some just sort of asking what what's going to what's going to what's going to also break the log jam of the game of hot potato of nobody wanted to hold inventory. Yeah, I don't think it's a, I really think it's just, you know, we all over build inventory, you know, direct vendors and distributors through the COVID period. I mean, we all talked about it. Um, and you know, I go back to my example on the medical, medical packaging side, they customers were just yelling for us to get more to them.

Mhm.

I would like to have a call back over to <unk> for closing comments.

Okay. Thank you all for joining our call this morning and for your reference.

Ed Breen: And usually when that happens, you see an overshoot happen. You know, and some of them probably even double order. You know, I've been through that before in my career. And, you know, and then you get the snapback. So I think that's what we're going through is that they're adjusting their inventory back to appropriate levels. They don't have to worry about carrying excess inventory, you know, because supply chains are normalized again. And again, we're doing the same thing. We're feeling confident about, you know, being able to get supply will are different components. And so we're working our inventory levels down from what we're elevated levels because of the COVID stuff.

A copy of a transcript will be posted on our website. This concludes our call. Thank you.

That does conclude our conference for today. Thank you for participating your mind at will disconnect.

[music].

Lori Koch: So I don't think we'll have to worry about different terms or anything with it, with our distributors. Okay. Good to hear.

Lori Koch: Laurie, can I just ask you what's updated thoughts on minimum cash levels that you want to keep, just as we think about next year and your cash flow generation versus what you might do from a shared purchase perspective. Yeah, so we'll start, still target about a billion and a half of minimum cash levels. As we had mentioned on the call, we'll look to return a significant portion of our cash flow to shareholders next year to Sherry purchases.

Lori Koch: So we'll be done with the existing ASR at some point later in the first quarter. And then I'll give us the ability to get back into the market underneath the new program as I mentioned, we have the Delver and proceeds coming in at some point today. So we'll have that cash flow. And then when we're in an open window again, we'll be able to do more share refurchase. Okay.

Unknown Executive: Great.

Frank Minch: Thanks so much. Your next question, Ponsolana, Frank Minch, a summary of research. Your line is open.

Lori Koch: Good morning. I wanted to follow up on, hey, how you doing? I wanted to follow up on spectrum. You indicated that financially it was performing in line with your projections. I was just curious. I think you indicated that you expected something like 45 million if you bid off for the balance of 23 since you closing on August 1. And also, I think you guys indicated you get about 20 million of synergies.

Lori Koch: Are those numbers still accurate? What's your what's your type on spectrum so far? Yes, spectrums performing according to plan, they've got nice growth on a year year basis, especially within the medical device size. The majority of the business medical device, there is a piece that goes into industrial and it's really based on some nice key wins that they've had with some of the large. Medical device producers, so we're pleased with the performance that we've seen that the numbers that you've had cited earlier are still on track and then the synergies delivery is 60 million in total.

Lori Koch: It's over, you know, a couple of your time to train for us to realize the synergies that that continues to remain on track as well. Obviously, the initial synergy delivery will come from some. Overhead Confolidation, and then we get after the procurement-related synergies and maybe some of the site-related synergies over time.

Frank Minch: Very helpful. Thank you, Lori.

Ed Breen: And if I could follow up on semiconductor technologies, indicated that AI growth is going to help this business in the future. Can you give us an idea of the size that you anticipate AI to grow to? Over 2024, 2025 in terms of your semiconductor business? Well, Frank, more high level. I think a lot of the growth will get, will allow this semiconductor business. Again, once we get through the downturn here and all that, that this business can grow kind of mid-to-high single digit, which by way it was doing before all the destuck it.

Ed Breen: Again, the market grows five to six to seven points. We'll grow two to 300 basis points above that. And that two to 300 basis points is mostly because of that high-end chip because of AI enablement and all that. And that plays to our sweet spots. So that's how we get that outsized growth usually over the market and AI plays right into that. Yeah, maybe just to help disguise it for you too.

Ed Breen: So within our semi portfolio, we have about a $700 billion business in data centers overall and about a little more than a third of that is direct to AI. So that's really a nice portion of growth that we continue to see above the overall MSI projections.

Frank Minch: Very helpful. Thanks so much. Thanks, Frank.

Stephen: Your next vision comes along with Stephen of Bank of America. Your line is open. Hi, I'm rock off and on for Steve Bern just going back to the spectrum business. Now that you've had the business for a couple of months, you've seen the opportunities for cross selling to these medical device companies. Yeah, that was one of the large species for the revenue synergy outside was that they are very strong and have great relationships on the medical device side and we're very strong and have great relationships on the biopharmus side and how can we bring those to two pieces together to generate revenue.

Stephen: So it's been a couple of months and that's the thesis as we've initially seen it continues to play out and we don't have the revenue synergies on the hand right now. But we see nice opportunities as we continue to integrate these two businesses together. I see that's great. And then which of your businesses do you see the most potential for share gains and a new product introduction versus volumes that are driven primarily by typical recoveries.

Stephen: Yeah, I mean, I think we see if we've taken by segment within E and I, we've mentioned that we should see two to 300 basis points of about size market growth within semi and that's the combination of share gain and just where our exposure is and advanced knows in the areas that are growing faster than others. We also see a step change opportunity within the general consumer electronics space. We have seen some nice share gain on the medallization side.

Stephen: It'll continue to show in the top line is that as the PCB providers start to ramp up their utilization rates to more normal levels that we have seen. And we have seen our performance versus some of the peers in the medallization space, the better. And then within the WP portfolio, we can say you just expect nice growth within water, you know, obviously we're in a decent right now, but we'll see nice growth.

Stephen: More from a secular basis to just that water industry is generally growing in the single that which is a nice market for us. And on the safety side, it's really going to be we've added capacity now and we have to, we'll get set change growth from utilizing that capacity. So we're nearing the completion of a additional line for tie that we've constrained the tie that market for years. And so we'll see some nice lift there as we fill up that asset and we've Recently expanded some capacity within a new technology in the Kevlar space, so it's a new opportunity for us to bring a lighter weight Kevlar to the market, and we look for good things from that business as well. And shelter generally should be more along the GDP type grower. Understood, thank you. Thanks.

Arun Viswanathan: And our final question today comes from a line of Arun Viswanathan. Arun Viswanathan, of RBC Capital Market. Your line is open.

Arun Viswanathan: Great question. Hey, I just wanted to take a quick try at maybe kind of mid cycle or longer term earnings growth. If you think about volumes, kind of maybe double digits below normal and electronics and then some leverage on a recovery there. You're exiting the year at around 3 billion of annual ID that does. With that implies something in the 3 to 3.3 to 3.6 kind of range as far as when you take a look at longer term or mid cycle where you want to get you.

Ed Breen: Thanks. Yeah, I mean, longer term. You know, you should you should get back into this. We were running the the E and I portfolio. I think it's where your focus was in the more of the 32% margin range. And we should see, you know, the volume kind of return there over time as the utilization rates at the large. PCP guys and the semi guys with her. But if we look more near term as far as headwinds tailwinds as we head into 2024 there's definitely tailwinds from volume growth from the electronics recovery and normalization of the destock.

Ed Breen: And there's obviously incremental tailwinds from the deflation we had mentioned as we go forward and then the benefit of the restructuring. And actions that we are now taking and we'll start to see the benefit of at some point later in the first quarter. And then just from an EPS perspective, we do continue to lower our share count. So what we'll see lower fourth quarter share count versus the full year, which will carry us into 2024 and then we'll have the incremental benefit of the 2 billion program that will complete in the first quarter.

Ed Breen: And then advance new shares. New share take out is also a nice EPS benefit that we've seen. As we took shares out throughout 2023, the headwinds though are, you know, I think we will continue to see the industrial days suck impact the water and safety businesses primarily in the first quarter. So that'll be a headwind to the to the first quarter. We will see most likely some price modernization or give back it primarily in the shelter businesses that I had mentioned, so we'll try we'll try and maintain that as long as that we can, but we will be cognizant of potential share loss and potentially have to be giving some back there.

Ed Breen: And then just we have taken some aggressive actions on the compensation side in 2023. So we are paying a below target variable compensation. Pay out this year and so we would most likely see normalization of that as we head into 2024. And so those are the big puts and takes with the one extra exception from a below the line perspective around interest income. So we did see about 145 million interest income this year, just as we help the proceeds from them, from them a lot from the sell and each transaction in the first track of where we get to play them to spectrum and then the full share repurchase program. So we would we would see a set down in 2024 from interest and come from about one 20 145 this year to probably 20 million next year. Thanks.

Chris Mecray: I would like to hand the call back over to Chris Mecray for closing comments. Okay, thank you all for joining our call this morning and for your reference.

Chris Mecray: The coffee of our transcript will be posted on our website.

Operator: This concludes our call. Thank you. That doesn't include our conference for today. Thank you for participating.

Operator: You may not all disconnect.