Q1 2024 Ashland Inc Earnings Call

January 31, 2024

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Unknown Executive: EasyWeb 300 is one of our newest inventions in line with our platforms, and I'm very excited about what the product brings to us as a company and what it brings to our customers from a perspective of innovation and the focus on sustainability. So it's a superweather, so basically, for substrates where you want to put a coat on, your coating level on, you need to basically first make sure that the level or the substrate you want to put it on has the adhesion of the product.

[music] ease with film it is one of our newest adventures in line of our platform and I'm very excited about what the throat.

It brings to us as a company and what it brings to our customers from a perspective of innovation and a focus on sustainability.

[music] supervisors for basically four ships rates, where you want to put a coat on unit coatings level do you need to basically first make sure that the level or do you see that you want to put it in the adhesion of the products, but really.

Unknown Executive: It really is creating the advantage of making that connection easier for us to use. The back advantage where we see it, it's a product that is natural, so it's silicone-free. A lot of the products which are out there are based on silicones, so we really go into the health issues, the environment where we have a differentiating product and make sure that we listen to our customers about solving their issues, not only from an application behavior but also from a sustainability perspective. We are known as a company in rheology and all these kinds of things. We now have something that acts as an adware portfolio, a broader portfolio for customers. We can innovate further on what we have. We have started with a new backbone; we can scale it, and we can modify it to make it work for basically any application. And we have seen what it can bring on a lab scale.

Trading to the advantage of making that connection easy for us to use the BEC advantage wherever she is and it's just a product which is natural.

Silicone free with a lot of the products, which are either old basic silicones. So we really go won't be health issues.

That's why we have a differentiating products and make sure to be listen to our customers solving their issues not only from a application behavior, but also from a sustainability perspective.

We have noticed a company who is in rheology and all these kind of things, we now have something extra to add to our portfolio of broader portfolio for customers. We can innovate fair to what we have just started with a new backbone. We can scale. It we can modify it to make it work for basically any application.

[music].

Unknown Executive: We of course post feedback from customers, and now we basically want to bring that broad out and make it available for everybody. Good day, and welcome to the Ashland Inc. first quarter 2024 earnings conference call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question, you will need to press star 11 on your telephone.

Speaker Change: Thank you and welcome to the Ashland, Inc. First quarter 2024 earnings conference call. At this time, all participants are in a listen only mode.

After the speaker's presentation, there will be a question and answer session.

Speaker Change: To ask a question you will need to press star one one on your telephone you will then hear an automated message advising your hand is raised to withdraw your question. Please press star. One again, please be advised that today's conference is being recorded I would now like to hand, the conference over to your speaker today, Seth Mrozek director for <unk>.

Unknown Executive: You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 11 again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Seth Mrozek, Director of Portfolio Strategy. Please go ahead.

Seth A. Mrozek: Leo strategy. Please go ahead.

Seth A. Mrozek: Thank you, Abigail. Hello, everyone, and welcome to Ashland's first quarter fiscal year 2024 earnings conference call. My name is Seth Mrozek, Director of Portfolio Strategy for Ashland. Joining me on the call today are Guillermo Novo, Ashland Chair and Chief Executive Officer, and Kevin Willis, Senior Vice President and Chief Financial Officer. In addition, I want to welcome William Whitaker, Vice President of Finance and Director of Investor Relations, Following this month's organization changes to Ashland's finance, strategy, M&A, and portfolio. William and I will complete the investor relations transition following this earnings release. Ashland released results for the quarter ended December 31st, 2023 at approximately 5 p.m. Eastern time yesterday, January. The news release issued last night was furnished to the SEC on Form 8.

Seth A. Mrozek: Thank you Abigail Hello, everyone and welcome to Ashland's first quarter fiscal year 2024 earnings conference call and webcast. My name is Seth Mrozek director of portfolio strategy for Ashland.

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

Seth A. Mrozek: In addition, I want to welcome William Whitaker, Vice President of Finance and director of Investor Relations. Following this month's organization changes to Ashland's finance strategy M&A and portfolio teams, William and I will complete the Investor relations transition following this earning cycle.

Seth A. Mrozek: Ashland released results for the quarter ended December 31, 2023 at approximately five P. M. Eastern time yesterday January 30th.

Seth A. Mrozek: News release issued last night was furnished to the SEC in a form 8-K.

Unknown Executive: During today's call, we will reference slides that are currently being webcast on our website ashland.com under the investor relations section. We encourage you to follow along with the webcast during the call. As a reminder, during today's call, we will be making forward-looking statements on several matters, including our financial outlook for our second quarter. Full Year Fiscal 2024. These forward-looking statements are subject to risks and uncertainties that could cause future results or events to differ materially from today's projections. We believe any such statements are based on reasonable assumptions but cannot assure you that such expectations will be achieved.

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

William A. Wulfsohn: As a reminder, during today's call we will be making forward looking statements on several matters, including our financial outlook for our second quarter and full year fiscal 2024 results.

William A. Wulfsohn: These forward looking statements are subject to risks and uncertainties that could cause future results or events to differ materially from today's projections. We believe any such statements are based on reasonable assumptions, but cannot assure that such expectations will be achieved please refer to slide two of the presentation for an explanation of those risks and uncertainties.

Unknown Executive: Please refer to slide two of the presentation for an explanation of those risks and uncertainty, and the limits applicable to forward-looking states. You can also review our most recent Form 10-K under Item 1A for a comprehensive discussion of the risk factors impacting, Please also note that we will be referring to certain actual and projected financial metrics on Ashland on an adjusted basis, which are non-GAAP financial, will refer to these measures as adjusted and present them to supplement your understanding and assessment of the financial performance of our ongoing Non-GAAP measures should not be considered a substitute for or superior to financial measures calculated, Transcribed by https://otter.ai, The most directly comparable GAAP measures, as well as reconciliation of the non-GAAP measures to those GAAP measures, are available on our website and in the appendix of today's slides. Please turn to slide three. Thank you.

And the limits applicable to forward looking statements you can also review our most recent Form 10-K under item one a for a comprehensive discussion of the risk factors impacting our business. Please also note that we will be referring to certain actual and projected financial metrics on Ashland on an adjusted basis, which are non-GAAP financial measures.

William A. Wulfsohn: We will refer to these measures as adjusted and present them to supplement your understanding and assessment of the financial performance of our ongoing business.

William A. Wulfsohn: non-GAAP measures should not be considered a substitute for or superior to financial measures calculated in accordance with GAAP.

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

William A. Wulfsohn: Please turn to slide three.

Guillermo Novo: Guillermo will begin the call this morning with an overview of Ashland's performance and results. Next, Kevin will provide a more detailed review of financial results, followed by commentary related to Ashland's outlook for the second quarter. Guillermo will then provide an update related to Ashland. Priorities will then open your line. Now I would like to turn the call over to Guillermo for his opening remarks. Thank you, Seth. And hello, everyone.

William A. Wulfsohn: Guillermo will begin the call. This morning, with an overview of Ashland's performance and results in the first quarter.

Guillermo Novo: Next Kevin will provide a more detailed review of financial results for the quarter, followed by commentary related to ashland's outlook for the second quarter and fiscal year 2024.

Speaker Change: <unk> will then provide an update related to ashland's strategic priorities and we will then open your line for questions.

Now I would like to turn the call over to Guillermo for his opening remarks Guillermo.

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

Guillermo Novo: Thank you for your interest in Ashland and for your participation today. First, I want to acknowledge that Ashland will soon recognize 100 years in business. The company has transformed tremendously since 1924. Looking ahead, we anticipate an exciting future built on our portfolio of world-class businesses with innovation driving long-term sustainable growth. Please turn to slide five.

Guillermo Novo: First I want to acknowledge that Ashton will soon recognized 100 years in business. The company has transformed tremendously since $19 24.

Guillermo Novo: Looking ahead, we anticipate an exciting future built on our portfolio of world class businesses with innovation driving long term sustainable growth.

Speaker Change: Please turn to slide five.

Guillermo Novo: Financial results in the December quarter exceeded our adjusted EBITDA Outlook Range issued on November 8, 2023, with revenues in line. Overall sales declined 10% from the prior year quarter to $473 million and reflect market demand dynamics consistent with previously communicated expectations. Demand patterns generally improved as we moved through the quarter, with growing evidence of convergence between Ashland sales volume and customer and market demand. Pockets of lower demand during the quarter were more aligned with specific customer or regional dynamics.

Speaker Change: Financial results in the December quarter exceeded our adjusted EBITDA outlook range issued on November eight 2023 with revenues in line.

Speaker Change: Overall sales declined 10% from prior year quarter to $473 million and reflect.

Speaker Change: Market demand dynamics consistent with previously communicated expectations.

Speaker Change: Demand patterns generally improved as we move through the quarter and with growing evidence of convergence between Ashland sales volume and customer and market demands.

Speaker Change: Pockets of lower demand during the quarter were more aligned with specific customer or regional dynamics.

Guillermo Novo: With generally reduced stress on supply chains, customer order patterns have normalized to pre-COVID levels of less than 30 days. I would note that December sales exceeded our expectations, and although seasonally lower demand months, our sales and order book for January and February are also exceeding our expectations. Pricing in some more competitive segments turned modestly unfavorable compared to the prior year, as we compare it against our inflation recovery pricing actions in the prior year.

Speaker Change: With generally reduced stress on supply chain customer order patterns.

Speaker Change: Timing have normalized to pre COVID-19 levels of less than 30 days.

Speaker Change: I would note that December sales exceeded our expectations and although seasonally lower demand months, our sales and order book for January and February are also exceeding our expectations.

Speaker Change: Pricing and selling more competitive segments turned modestly unfavorable compared to the prior year as we comp against our inflation recovery pricing actions in the prior year.

Guillermo Novo: Maintaining a pricing margin balance will be critical as we navigate the moderation of costs and increase competitive activity. Dash and his team manage these dynamics very well during the quarter. The largest impact to our first quarter profitability was absorption-related costs versus the prior year quarter as we prudently managed production and inventory levels. While we are cautiously optimistic about the improving demand trends that we're experiencing in the quarter and into January and February, there's still heightened uncertainty regarding customer demand normalization. Typically, we would be building inventory for the peak season at this time. And currently, we are not doing that build.

Speaker Change: Maintaining a pricing margin balance will be critical as we navigate the moderation of cost and increased competitive activity.

Speaker Change: The Ashland team manage these dynamics very well during the quarter.

Speaker Change: The largest impact to our first quarter profitability.

Speaker Change: Was absorption related costs versus the prior year quarter, as we prudently manage production and inventory levels.

While we are cautiously optimistic about the improving demand trends that we're experiencing in the quarter and into January and February there's still heightened uncertainty regarding customer demand normalization.

Speaker Change: <unk>, we would be building inventory for the peak season at this time and currently we are not doing that built.

Guillermo Novo: Ashland will remain disciplined in its production levels, targeting to produce to near-term demand. However, production in the first quarter of 2023 exceeded customer demand, as evidenced by the inventory build and necessary corrective actions later in the year, creating a difficult year-over-year comparison for the quarter. This is evident by comparing the sales and production ballot volumes versus our prior year quarter. Sales volume and production volumes were down 12% and 24%, respectively, a 2X relative difference.

Speaker Change: Ashton will remain disciplined in its production levels targeting to produce to near term demand.

Speaker Change: Production in the first quarter of 2023 exceeded customer demand.

Speaker Change: As evidenced by the inventory build and necessary corrective actions later in the year.

Speaker Change: Creating a difficult year over year comparison for the quarter.

Speaker Change: This is evidenced by comparing the sales and production volumes versus our prior year quarter.

Speaker Change: Sales volume and production volumes were down, 12% and 24% respectively were two X relative difference.

Guillermo Novo: The overall adjusted EBITDA impact of lower operating rates at our plants versus the prior year quarter totaled $31 million, primarily impacting our specialty additives and personal care business units. Adjusted EBITDA for the quarter decreased 35% to 70 million, reflecting these dynamics, but we're above our expectations for the. In terms of our longer-term priorities, we're delivering on our strategic priorities to execute, globalize, innovate, and acquire to build resilience and improve performance of the core businesses, as well as drive long-term profitable growth. We have conviction that our strategy will deliver sustainable long-term above-market growth for the company. Kevin and I will provide a detailed update on our strategic priorities, but we remain on track and committed to delivering on our strategic and financial goals.

Speaker Change: The overall adjusted EBITDA impact of lower operating rates at our plants versus the prior year quarter totaled $31 million.

Speaker Change: Primarily impacting our specialty additives and personal care business units.

Speaker Change: Adjusted EBITDA for the quarter decreased 35% to $70 million, reflecting these dynamics, but we're above our expectations for the quarter.

Speaker Change: In terms of our longer term priorities, we're delivering on our strategic priorities to execute globalized innovate and acquire to build resilience and improve performance of the core businesses as well as drive long term profitable growth.

Speaker Change: We have conviction that our strategy will deliver sustainable long term above market growth for the company.

Speaker Change: Kevin and I will provide a detailed update later on our strategic priorities, but we remain on track and committed to delivering against our strategic and financial goals.

Guillermo Novo: We believe the current share price does not reflect our expectations for long-term growth margin and capital return improvements with reduced performance volatility. We continue to believe our stock is an attractive use of capital, as demonstrated by our repurchase of $100 million of shares during the quarter. Our strong balance sheet enabled us to pursue a balanced capital allocation approach, investing in our targeted growth strategy, in addition to returning capital to our shareholders. Please turn to slide 6.

Speaker Change: We believe the current share price does not reflect our expectations for long term growth margin and capital return improvements with reduced performance volatility.

Speaker Change: We continue to believe our stock is an attractive use of capital as demonstrated by our repurchase of $100 million of shares during the quarter.

Speaker Change: Our strong balance sheet enabled us to pursue a balanced capital allocation approach investing in our targeted growth strategy. In addition to returning capital to our shareholders.

Speaker Change: Please turn to slide six.

Guillermo Novo: Sales declined in each of our segments due to the factors that I referenced earlier, with the largest relative impact on our specialty additives and intermediate business. Discipline production was approximately in line with near-term demand, impacting plant loading, profitability, and improving ongoing pre-castle for the quarter. However, we are encouraged by current demand patterns, implying a recovery is underway with an expectation of continued momentum into the second half of the fiscal year, narrowing the range of possible demand recovery scenarios. We continue to position the company for a more resilient operation across multiple scenarios. While January and February demand improvements are encouraging, March is the critical month for seasonal demand pickup, so we will be tracking March as a more meaningful indicator of demand normalization.

Speaker Change: Sales declined in each of our segments due to the factors that I referenced earlier.

Speaker Change: With the largest relative impact in our specialty additives and intermediates business here.

Speaker Change: Disciplined production was approximately in line with near term demand impacting plant loading profitability and improving.

Speaker Change: Ongoing free cash flow for the quarter.

Speaker Change: However, we are encouraged by current demand patterns imply a recovery is underway with an expectation of continued momentum into the second half of the fiscal year narrowing the range of possible demand recovery scenarios.

Speaker Change: We continue to position the company for a more resilient operations across multiple scenarios.

Speaker Change: While January and February demand improvements are encouraging March is the critical months of course seasonal demand pick up we will be tracking March as a more meaningful indicator of demand normalization.

John Kevin Willis: We are well positioned for the coming inflection. Now, let me turn over the call to Kevin to review Q1 in more detail, and I'll come back later to talk about our strategic progress on our strategic actions.

Speaker Change: We are well position for the coming inflection point.

Speaker Change: Now, let me turn over the call to Kevin to review Q1 in more detail and I'll come back later to talk about our strategic progress on our strategic actions Kevin.

John Kevin Willis: Thank you, Guillermo, and good morning everyone. Please turn to slide 8. Total Ashland sales in the quarter were $473 million, down 10% compared to the prior year with reduced volumes for all sectors. Pricing was favorable for the life sciences and personal care business units, but offset by softer pricing and intermediates, and architectural coding; foreign currency had a favorable impact on sales of 1%. [inaudible] plant loading that Guillermo highlighted earlier. However, negative absorption outpaced favorable price versus raw material costs during the quarter. When excluding key items SG&A, R&D, and intangible amortization costs were $103 million, down from $116 million in the prior year, mainly reflecting lower variable compensation expenses primarily related to equity-based. In total, Ashland's adjusted EBITDA for the quarter was $70 million, down 35% from the prior year. Ashland's adjusted EBITDA margin for the quarter was 14.8%, down from 20. Adjusted EPS excluding acquisition amortization for the quarter was 45 cents, down from 97 cents in the prior year quarter.

Kevin Willis: Thank you Guillermo and good morning, everyone. Please turn to slide eight.

Kevin Willis: Total Ashland sales in the quarter were $473 million.

Kevin Willis: Down 10% compared to prior year with reduced volumes for all segments.

Kevin Willis: Pricing was favorable for the life Sciences, and personal care business units, but offset by softer pricing and intermediates in architectural coatings.

Kevin Willis: Foreign currency had a favorable impact on sales of 1%.

Kevin Willis: Gross profit margin declined to 25, 2% driven primarily by the absorption impact associated with decreased.

Kevin Willis: Plant loading the Guillermo highlighted earlier negative absorption outpaced favorable price versus raw material costs during the quarter when.

Kevin Willis: When excluding key items, SG&A, R&D and intangible amortization costs were $103 million.

Kevin Willis: Down from $116 million in the prior year, mainly reflecting lower variable compensation expenses, primarily related to equity based comp.

Kevin Willis: In total ashland's adjusted EBITDA for the quarter was $70 million down 35% from the prior year.

Kevin Willis: <unk> adjusted EBITDA margin for the quarter was 14, 8% down from 26% in the prior year, reflecting the factors I just discussed.

Kevin Willis: Adjusted EPS, excluding acquisition amortization for the quarter was <unk> 45 down from 97 in the prior year quarter.

John Kevin Willis: Ongoing free cash flow improved to $66 million for the quarter, up from a $21 million use of cash in the prior year quarter, primarily reflecting changes in working capital resulting from our prudent inventory management, as well as reduced incentive compensation payout. Now, let's review the results of each of our four operating segments. Please turn to slide 10.

Kevin Willis: Ongoing free cash flow improved to $66 million for the quarter up from $21 million use of cash in the prior year quarter, primarily reflecting changes in working capital, resulting from our prudent inventory management as well as reduced incentive compensation payouts.

Guillermo Novo: EasyWeb 300 is one of our newest inventions in line with our platforms, and I'm very excited about what the product brings to us as a company and what it brings to our customers from a perspective of innovation and the focus on sustainability. So it's a superweather, so basically, for the substrate where you want to put a coat on, your coating level on, you need to basically first make sure that the level or the substrate you want to put it on has the adhesion of the product.

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

John Kevin Willis: Within Life Sciences, normalized global supply of PVP reduced demand in pharma versus a strong prior year period. Nutraceuticals maintained a strong recovery versus a week prior year period, while sales to nutrition and markets remained challenged. Overall pricing for Life Sciences was favorable. Life Sciences sales declined by 3% to $200 million, while adjusted EBITDA decreased by 8% to $48 million.

Speaker Change: Within life Sciences normalized global supply of Pvp reduced demand in pharma versus a strong prior year period.

Speaker Change: Nutraceuticals has maintained a strong recovery versus a weak prior year period, while sales to nutrition end markets remained challenged overall pricing for life Sciences was favorable.

Speaker Change: Life Sciences sales declined by 3% to $200 million.

Speaker Change: While adjusted EBITDA decreased by 8% to $48 million.

John Kevin Willis: Adjusted EBITDA margin decreased to 24%, primarily reflecting negative sales and production volumes, partially offset by favorable prices; please turn to slide 11. Weakened demand negatively impacted personal care in the quarter, primarily within the skin and oral care segments, partially offset by strength and hair. Our Evoca business catering to the fragrance market remains challenged, but overall pricing for personal care was favorable. In the quarter, personal care sales declined by 7% to $129 million, while adjusted EBITDA declined 31% to $22 million. Pricing over raw material dynamics was sustained, but margins were negatively impacted by lower sales and production volumes. Please turn to slide 12.

Speaker Change: Adjusted EBITDA margin decreased to 24%, primarily reflecting negative sales and production volumes, partially offset by favorable pricing.

Guillermo Novo: It really is creating the advantage of making that connection easier for us to use. The back advantage where we see it, it's a product that is natural, so it's silicone-free. A lot of the products which are out there are based on silicones, so we really go into the health issues, the environment where we have a differentiating product and make sure that we listen to our customers about solving their issues, not only from an application behavior but also from a sustainability perspective. We are known as a company in rheology and all these kinds of things. We now have something that acts as an adware portfolio, a broader portfolio for customers. We can innovate further on what we have. We have started with a new backbone; we can scale it, and we can modify it to make it work for basically any application.

Speaker Change: Please turn to slide 11.

Okay weakened demand negatively impacted personal care in the quarter, primarily within the skin in oral care segments, partially offset by strength in hair care or revoke a business catering to the fragrance market remains challenged.

Speaker Change: Overall pricing for personal care was favorable in the quarter personal care sales declined by 7% to $129 million while.

Speaker Change: <unk> EBITDA declined 31% to $22 million.

Speaker Change: Pricing over raw material dynamics were sustained but margins were negatively impacted by lower sales and production volumes.

Operator: We have seen what it can bring on a lab scale, we have got positive feedback from customers, and now we basically want to bring that broad out and make it available for everybody. Good day, and welcome to the Ashland, Inc. First Quarter 2024 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question, you will need to press star 11 on your telephone.

Speaker Change: Please turn to slide 12.

John Kevin Willis: Specialty Additives was impacted by reduced demand, though the architectural coding in market continues to be less impacted than others in the business. For the quarter, specialty additive sales declined by 15% to $122 million, while adjusted EBITDA declined by 74% to $6 million, primarily reflecting production volume and sales. Pricing turned negative in the quarter versus the prior year quarter, but was offset by favorable raw materials. Please turn to slide 13.

Speaker Change: Especially additives was impacted by reduced demand, though the architectural coating end market continues to be less impacted than others in the business for.

Speaker Change: For the quarter specialty additives sales declined by 15% to $122 million, while adjusted EBITDA declined by 74% to $6 million, primarily reflecting production volume and sales declines pricing turned negative in the quarter versus the prior year quarter, but was offset by favorable raw materials.

Please turn to slide 13.

John Kevin Willis: Intermediates reported sales of $33 million, down 39% compared to the prior year, driven by lower pricing and volume. Intermediates reported adjusted EBITDA of $10 million compared to $23 million in the prior year, and adjusted EBITDA margin declined to 30.3%, primarily reflecting lower prices. Please turn to slide four. Ashland continues to have a strong financial position following another quarter of robust ongoing free cash flow generation. As of the end of December, we had cash on hand of approximately $440 million, with total available liquidity of roughly $1 billion. Our net debt was $901 million, which is about 2.1 terms of leverage.

Speaker Change: Intermediates reported sales of $33 million down 39% compared to the prior year, driven by lower pricing and volumes intermediates reported adjusted EBITDA of $10 million compared to $23 million in the prior year and adjusted EBITDA margin declined to 33% Prime.

Speaker Change: Merrily, reflecting lower pricing.

Speaker Change: Please turn to slide 14.

Speaker Change: Ashland continues to have a strong financial position following another quarter of robust ongoing free cash flow generation.

Speaker Change: As of the end of December we had cash on hand of approximately $440 million with total available liquidity of roughly $1 billion.

Operator: You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 11 again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Seth Mrozek, Director of Portfolio Strategy. Please go ahead.

Speaker Change: Our net debt was $901 million, which is about two one turns of leverage.

John Kevin Willis: We have no floating rate debt outstanding, and no long-term debt maturities for the next three years, and all of our outstanding debt is subject to investment grade style credit. As Guillermo noted, we continue to believe Ashland stock is an attractive use of capital and deployed $100 million to repurchase 1.2 million shares during the quarter, bringing the total over the last 30 months to $1.05 billion deployed and 11.1 million shares retired. We have $900 million remaining under the current Evergreen share repurchase authorization.

Speaker Change: We have no floating rate debt outstanding no long term debt maturities for the next three years and all of our outstanding debt is subject to investment grade style credit terms.

Seth A. Mrozek: Thank you, Abigail. Hello, everyone, and welcome to Ashland's first quarter fiscal year 2024 earnings conference call. My name is Seth Mrozek, Director of Portfolio Strategy for AXA. Joining me on the call today are Guillermo Novo, Ashland Chair and Chief Executive Officer, and Kevin Willis, Senior Vice President and Chief Financial Officer. In addition, I want to welcome William Whitaker, Vice President of Finance and Director of Investor Relations, Following this month's organization changes to Ashland's finance, strategy, M&A, and portfolio. William and I will complete the investor relations transition following this earnings release. Ashland released results for the quarter ended December 31st, 2023 at approximately 5 p.m. Eastern time yesterday, January. The news release issued last night was furnished to the SEC on Form 8.

Speaker Change: As <unk> noted we continue to believe Ashland's stock is an attractive use of capital and deployed $100 million to repurchase one 2 million shares during the quarter, bringing the total over the last 30 months to $1 <unk> 5 billion deployed and $11 1 million shares.

Speaker Change: Tired.

Speaker Change: We have $900 million remaining under the current evergreen share repurchase authorization.

John Kevin Willis: We are prudently managing inventory during a period of uncertainty. Inventory levels have decreased $136 million compared to the prior year quarter and $38 million sequentially, which better positions us to produce the demand. Overall working capital management supported the generation of $66 million of ongoing free cash flow in the quarter, delivering a compelling 94% adjusted EBITDA conversion.

Speaker Change: We are prudently managing inventory during the period of uncertainty.

Speaker Change: Inventory levels have decreased $136 million, when compared to the prior year quarter, and $38 million sequentially, which better positions us to produce to demand.

Speaker Change: Overall, working capital management supported the generation of $66 million of ongoing free cash flow in the quarter.

Speaker Change: Delivering a compelling 94% adjusted EBITDA conversion.

Seth A. Mrozek: During today's call, we will reference slides that are currently being webcast on our website, Ashland.com, under the Investor Relations section. We encourage you to follow along with the webcast during the call. As a reminder, during today's call, we will be making forward-looking statements on several matters, including our financial outlook for our second quarter and full year fiscal 2024. These forward-looking statements are subject to risks and uncertainties that could cause future results or events to differ materially from today's projections. I do not believe any such statements are based on reasonable assumptions but cannot assure that such expectations will be achieved; please refer to slide two of the presentation for an explanation of those risks and uncertainties and the limits applicable to forward-looking states.

John Kevin Willis: We are investing in our existing businesses and technology platforms to grow organically and continue to pursue our strategy of enhanced profitable growth through targeted bolt-on M&A opportunities focused on pharma, personal care, and COTA. Ashland's balance sheet is well positioned to continue to give us the flexibility to pursue our targeted growth strategy as we reward our shareholders with a strong dividend policy and continued share reversal. With that, I'll now provide an update on the execution pillar of our strategic priorities in addition to an updated outline. Please turn to slide 16.

Speaker Change: We are investing in our existing businesses and technology platforms to grow organically and continue to pursue our strategy of enhanced profitable growth through targeted bolt on M&A opportunities focused on pharma personal care and coatings.

Speaker Change: Ashland's balance sheet is well positioned to continue to give us the flexibility to pursue our targeted growth strategy as we reward our shareholders with a strong dividend policy and continued share repurchases.

Speaker Change: With that I'll now provide an update on the execute pillar of our strategic priorities. In addition to an updated outlook.

Speaker Change: Turn to slide 16.

John Kevin Willis: The key aspect of our Execute strategic priority captures needed portfolio optimization to address underperforming businesses that are not core and where we do not have technology or market leadership. As previously outlined in our fourth quarter 2023 earnings call, we have four primary portfolio actions underway. Diluting Our Nutraceuticals Business, optimizing and consolidating our CMC and MC industrial businesses, as well as rebalancing our global HEC production network. The nutraceuticals process is underway and going well. Nutraceuticals is a high-quality business and continues to reform, as evidenced by its recent strong recovery, but it is outside of our core business and strategy.

Speaker Change: A key aspect of our execute strategic priority captures needed portfolio optimization to address underperforming businesses that are not core and where we do not have technology core market leadership.

Seth A. Mrozek: You can also review our most recent Form 10-K under Item 1A for a comprehensive discussion of the risk factors impacting, Please also note that we will be referring to certain actual and projected financial metrics on Ashland on an adjusted basis, which are non-GAAP financial measures, will refer to these measures as adjusted and present them to supplement your understanding and assessment of the financial performance of our ongoing operations. Non-GAAP measures should not be considered a substitute for or The most directly comparable GAAP measures, as well as reconciliation of non-GAAP measures to those GAAP measures, are available on our website and in the appendix to today's slides. Please turn to slide 3. Thank you.

As previously outlined in our fourth quarter 2023 earnings call. We have four primary portfolio actions underway.

Speaker Change: Divesting our Nutraceuticals business.

Speaker Change: Optimize optimizing and consolidating our CMC and MSC industrial businesses as well as rebalancing our global Hec production network.

Speaker Change: The nutraceuticals process is underway and going well.

Speaker Change: Nutraceuticals as a high quality business and continues to reform as evidenced by its recent strong recovery, but outside of our core business and strategy.

John Kevin Willis: The process has gained significant interest from higher-value owners, and we expect to sign and close a transaction within this fiscal year. Ashland's most advanced portfolio action involves optimizing and consolidating our CMC business. We are exiting low-margin business and migrating select CMC volumes into Alizé, France, resulting in a closure of CMC production capacity in Hopewell, Virginia, during the fiscal second quarter of 2024. This work stream led to $21 million of accelerated depreciation expense during the quarter.

Speaker Change: The process has gained significant interest from higher value owners, and we expect to sign and close the transaction within this fiscal year.

Guillermo Novo: Guillermo will begin the call this morning with an overview of Ashland's performance and results. Next, Kevin will provide a more detailed review of financial results, followed by commentary related to Ashland's outlook for the second quarter. Guillermo will then provide an update related to priorities, and then open your line. Now I would like to turn the call over to Guillermo for his opening remarks. Thank you, Seth, and hello,

Speaker Change: Ashland's, most advanced portfolio action involves optimizing and consolidating our CMC business.

Speaker Change: We are exiting low margin business and migrating select CMC volumes into allo, <unk>, France, resulting in a closure of CMC production capacity and Hopewell, Virginia during the fiscal second quarter of 2024.

Speaker Change: This work stream led to $21 million of accelerated depreciation expense during the quarter.

John Kevin Willis: Other actions to improve Ashland's MC Industrial and HEC businesses continue to be assessed and will be communicated in due course. Meanwhile, as we take these actions, we will be exploring opportunities to leverage these assets to repurpose and support other strategic priorities. We continue to expect the Portfolio Optimization activities to be complete by the end of calendar year 2024. In summary, all portfolio actions are on track, and we're committed to acting with appropriate urgency to deliver on our commitments, including the reduction of all stranded costs that result from these actions. Please turn to slide 17, highlighted on the left. Our portfolio actions will have a meaningful impact on the company's profitability, as well as capital and operational efficiency to deliver stronger performance.

Speaker Change: Other actions to improve ashland's, NC industrial and <unk> businesses continue to be assessed and will be communicated in due course as we take these actions we will be exploring opportunities to leverage these assets to repurpose and support other strategic priorities.

Speaker Change: We continue to expect the portfolio optimization activities to be complete by the end of calendar year 2024.

Guillermo Novo: Financial results in the December quarter exceeded our adjusted EBITDA outlook range issued on November 8, 2023, with revenues in line. Overall sales declined 10% from the prior year quarter to $473 million and reflect market demand dynamics consistent with previously communicated expectations. Demand patterns generally improved as we moved through the quarter, with growing evidence of convergence between Ashland sales volume and customer and market demand. Pockets of lower demand during the quarter were more aligned with specific customer or regional dynamics.

Speaker Change: In summary, all portfolio actions are on track and we are committed to act with appropriate urgency to deliver on our commitments, including the reduction of all stranded costs that result from these actions.

Speaker Change: Please turn to slide 17.

Speaker Change: As highlighted on the left our portfolio actions will have a meaningful impact on the company's profitability as well as capital and operational efficiency to deliver stronger performance spin.

John Kevin Willis: Specifically, once the actions are fully complete, we expect expanded adjusted EBITDA margins of 200 to 250 basis points, an increase in return on net assets of 150 to 200 basis points, 10 to 15% improvement in network utilization rates and impacted product lines as select SKUs are shifted within the network, and a 10% reduction in working capital as well as capital investment avoidance going forward. We expect a modest reduction in fiscal year 2024 sales from our portfolio actions, totaling 30 to $40 million of lower sales related to CMC and industrial MC versus 2023.

Speaker Change: Specifically once the actions are fully complete we expect expanded adjusted EBITDA margins of 200 to 250 basis points.

Speaker Change: An increase to return on net assets of 150 to 200 basis points or 10% to 15% improvement in network utilization rates and impacted product lines as select skus are shifted within the network and a 10% reduction in working capital as well as capital investment avoidance.

Speaker Change: Going forward.

Speaker Change: We expect a modest reduction in fiscal year 2024 sales from our portfolio actions totaling $30 million to $40 million of lower sales related to CMC and industrial Lindsay versus 2023.

John Kevin Willis: The impact from a nutraceutical sale will be dependent on the timing of closing, but the business is averaging quarterly sales of approximately $30 million over the past 12, and lastly, we expect no material sales impact from rebalancing our HEC production network in fiscal year 2020. Looking ahead to fiscal year 2025, we expect sales to decrease by an additional $130 to $150 million versus fiscal year 2024 as a result of the completed portfolio actions with little to no impact on EBITDA. We are committed to eliminating the stranded costs associated with these actions and recapturing lost gross profit, making them EBITDA neutral. There are approximately $80 million in stranded costs and $20 million of reduced gross profit associated with our action.

Speaker Change: The impact from a nutraceutical sale will be dependent on the timing of closing, but the business is averaging quarterly sales of approximately $30 million over the past 12 months and lastly, we expect no material sales impact from rebalancing, our Hec production network in fiscal year 2024.

Speaker Change: Looking ahead to fiscal year 2025, we expect sales to reduce an additional $130 million to $150 million versus fiscal year 'twenty four as a result of the completed portfolio actions with little to no impact on EBITDA.

Speaker Change: We are committed to eliminating the stranded costs associated with these actions and recapturing loss group gross profit, making them EBITDA neutral.

Speaker Change: There are approximately $80 million and stranded cost and $20 million of reduced gross profit associated with our actions.

John Kevin Willis: The majority of the stranded costs are directly related to manufacturing and will be eliminated after production is consolidated, and the lost gross profit will be offset by improved utilization in the plant network. While we're still finalizing the plans and specific cash costs for some of our portfolio actions, we expect the CMC and Industrial MC working capital release and capital avoidance to fund the one-time cash cost associated with our plan. Now on to our out. Please turn to slide eight.

The majority of the stranded costs are directly related to manufacturing and will be a limited <unk>.

Speaker Change: Eliminated after production is consolidated and the loss gross profit will be offset by improved utilization in the plant network, while we're still finalizing the plans and specific cash cost for.

Guillermo Novo: Production in the first quarter of 2023 exceeded customer demand, as evidenced by the inventory build and necessary corrective actions later in the year, creating a difficult year-over-year comparison for the quarter. This is evident by comparing the sales and production ballot volumes versus our prior year quarter. Sales volume and production volumes were down 12% and 24%, respectively, a two X relative difference.

For some of our portfolio actions, we expect to CMC and industrial EMC working capital release and capital avoidance to approximately fund the one time cash costs associated with our plans.

Speaker Change: Now onto our outlook.

Speaker Change: Please turn to slide 18.

John Kevin Willis: As we look ahead into Q2 and fiscal year 2024, the major question is the timing and magnitude of the demand recovery. As Guillermo mentioned, current demand patterns indicate recovery is underway, with our sales volumes beginning to align with customer and market demand trends. Specifically, January sales are demonstrating a strong month-over-month recovery of approximately 25%, which is roughly in line with January 2023, a period before destocking intensified. In addition, February is shaping up to be a promising month based on order patterns. As Guillermo indicated, March is the linchpin month of the quarter and will largely define the magnitude of the recovery we are seeing in January and February.

As we look ahead into Q2 and fiscal year 2020 for the major question is the timing and magnitude of the demand recovery.

Speaker Change: Guillermo mentioned current demand patterns imply a recovery is underway with our sales volumes beginning to align with customer and market demand trends specifically January sales are demonstrating a strong month over month recovery of approximately 25%, which is roughly in line with January 2023 of peers.

Guillermo Novo: The overall adjusted EBITDA impact of lower operating rates at our plants versus the prior year quarter totaled $31 million, primarily impacting our specialty additives and personal care business units. Adjusted EBITDA for the quarter decreased 35% to 70 million, reflecting these dynamics but was above our expectations for the. In terms of our longer-term priorities, we're delivering on our strategic priorities to execute, globalize, innovate, and acquire to build resilience and improve performance of the core businesses, as well as drive long-term profitable growth. We have conviction that our strategy will deliver sustainable, long-term, above-market growth for the company. Kevin and I will provide a detailed update on our strategic priorities, but we remain on track and committed to delivering on our strategic and financial goals.

Speaker Change: Before Destocking had intensified in addition February a shape shaping up to be a promising month based on the order pattern is.

Speaker Change: As Guillermo indicated March just the linchpin month of the quarter and will largely define the magnitude of the recovery, we're seeing in January and February while.

John Kevin Willis: While these are clearly positive data points, the critical question is how sustainable is this demand normalization? The current trends suggest a demand recovery occurring in our second quarter with potential momentum heading into our second half of the fiscal year. We are encouraged by recent demand activity for our products as well as positive economic, consumer, and industry data. The next critical assumption is margin management. Depending on margin recovery, competitive pressures will vary across different segments. Therefore, maintaining pricing discipline will be important during our second quarter but also throughout the year. We do expect pricing pressures to be partially offset by raw material deflation, but the timing will be important as we work through existing inventory. The Ashland team is keenly focused on pricing versus raw material balance for the year, which serves as a risk and an opportunity for overall results.

Speaker Change: While these are clearly positive data points to critical question is how sustainable is this demand normalization.

Speaker Change: Current trends suggest the demand recovery occurring in our second quarter with potential momentum heading into our second half of the fiscal year.

Speaker Change: We are encouraged by recent demand activity for our products as well as positive economic consumer and industry data.

Speaker Change: Next critical assumption as margin management, depending on margin recovery competitive pressures will vary across different segments, maintaining pricing discipline will be important during our second quarter, but also throughout the year, we do expect pricing pressures to be partially offset by raw material deflation, but the timing will be.

Guillermo Novo: We believe the current share price does not reflect our expectations for long-term growth, margin, and capital return improvements with reduced performance volatility. We continue to believe our stock is an attractive use of capital, as demonstrated by our repurchase of $100 million of shares during the quarter. Our strong balance sheet enabled us to pursue a balanced capital allocation approach investing in our targeted growth strategy, in addition to returning capital to our shareholders. Please turn to slide six.

Speaker Change: Important as we work through existing inventory.

Speaker Change: The Ashland team is keenly focused on pricing versus raw material balance for the year, which serves as a risk and an opportunity for overall results.

John Kevin Willis: We have committed to produce to demand, and we're much better positioned to do so than our prior year, when, in hindsight, production in the first half of the year meaningfully outpaced demand, requiring inventory actions later in the year. We do expect absorption benefits as demand normalizes, which should be much more impactful during the second half of the fiscal year as compared with 2023. That said, we are continuing to manage production activities to maintain inventory. Taking all of this into account, for the fiscal second quarter, the company expects sales in the range of $565 to $585 million and adjusted EBITDA in the range of $115 to $125 million.

Speaker Change: We have committed to produce to demand we're much better positioned to do so than our prior year when in hindsight production in the first half of the year meaningfully outpaced demand requiring inventory actions later in the year.

Guillermo Novo: Sales declined in each of our segments due to the factors that I referenced earlier, with the largest relative impact in our specialty additives and intermediates business. Discipline production was approximately in line with near-term demand, impacting plant loading, profitability, and improving ongoing pre-castle for the quarter. However, we are encouraged by current demand patterns, implying a recovery is underway with an expectation of continued momentum into the second half of the fiscal year, narrowing the range of possible demand recovery scenarios. We continue to position the company for more resilient operations across multiple scenarios. While January and February demand improvements are encouraging, March is the critical month for seasonal demand pickup, so we will be tracking March as a more meaningful indicator of demand normalization.

Speaker Change: We do expect absorption benefits as demand normalizes, which should be much more impactful during the second half of the fiscal year as compared with 2023.

Speaker Change: That said, we are continuing to manage production activities to maintain inventory discipline take.

Speaker Change: Taking all of this into account for the fiscal second quarter. The company expects sales in the range of $565 million to $585 million.

Speaker Change: And adjusted EBITDA in the range of $115 million to $125 million for the full year, we expect sales in the range of $2, one five to 2.25 billion.

Guillermo Novo: For the full year, we expect sales in the range of $2.15 to $2.25 billion and adjusted EBITDA in the range of $460 to $500 million. Based on recent demand trends, we have removed the downside demand recovery scenario that we discussed on our last earnings call from our range of possible outcomes. Key risks and opportunities are listed on the slide, but aside from demand recovery, variability in plant loading, and price versus raw material balance will be critical for upcoming financial results. And now, let me turn the call back to Guillermo to provide an update on our strategic priorities. Guillermo?

Speaker Change: And adjusted EBITDA in the range of $460 million to $500 million.

Based on recent demand trends, we have removed the downside demand recovery scenario that we discussed on our last earnings call from a range of possible outcomes.

Kevin Willis: We are well positioned for the coming inflection. Now, let me turn over the call to Kevin to review Q1 in more detail, and I'll come back later to talk about our strategic progress on our strategic actions.

Key risks and opportunities are listed on the slide but aside from demand recovery variability in plant loading.

Speaker Change: And price versus raw material balance will be critical for upcoming financial results and now let me turn the call back to Guillermo to provide an update on our strategic priorities Guillermo.

Kevin Willis: Thank you, Guillermo, and good morning everyone. Please turn to slide 8. Total Ashland sales in the quarter were $473 million, down 10% compared to the prior year, with reduced volumes for all sectors. Pricing was favorable for the life sciences and personal care business units, but offset by softer pricing and intermediates and architectural coding; foreign currency had a favorable impact on sales of 1%. Gross profit margin declined to 25.2%, driven primarily by the absorption impact associated with decreased plant loading that Guillermo highlighted earlier. Negative absorption outpaced favorable price versus raw material costs during the quarter. When excluding key items, SG&A, R&D, and intangible amortization costs were $103 million, down from $116 million in the prior year, mainly reflecting lower variable compensation expenses primarily related to equity-based. In total, Ashland's adjusted EBITDA for the quarter was $70 million, down 35% from the prior year. Ashland's adjusted EBITDA margin for the quarter was 14.8%, down from 20.6% in the prior year, reflecting the factors I just discussed. Adjusted EPS excluding acquisition amortization for the quarter was $0.45, down from $0.97 in the prior year quarter.

Guillermo Novo: Thank you, Kevin, and please turn to slide 20. Our strategic priorities remain unchanged and continue to guide our actions, investments, and profitable growth expectations. The priorities include execute, globalize, innovate, and acquire, as we outlined in our innovation day during the last earnings call. Each priority is rooted in our passion to win and operate with urgency. Our execute actions include select portfolio actions.

Guillermo Novo: Thank you, Kevin and please turn to slide 20.

Guillermo Novo: Our strategic priorities remain unchanged and continues to guide our actions investments and profitable growth expectations.

Guillermo Novo: The priorities include execute globalized innovate and acquire as we outlined in our innovation day during the last earnings call.

Guillermo Novo: These priority is rooted in our passion to win and operate with urgency.

Guillermo Novo: Execute priorities include select portfolio actions as Kevin shared we are making good progress on these actions and the resulting impact will strengthen ashland's performance.

Guillermo Novo: Kevin shared that we are making good progress on these actions, and the resulting impact will strengthen Ashland's performance. Our Globalized and Innovate priorities are focused on profitable growth. The Ashland team is making progress in both areas. Please turn to slide 21.

Guillermo Novo: Our globalized and innovate priorities are focused on profitable growth. The Ashland team is making progress in both areas. Please turn to slide 21.

Guillermo Novo: Activities are underway to globalize four of our higher growth and higher margin business lines, which include two businesses within pharma are injectables and our film coatings for oral solid dose tablets as well as two businesses and our personal care businesses.

Guillermo Novo: Activities are underway to globalize four of our higher growth and higher margin business lines, which include two businesses within pharma, our injectables business, and our film coatings for oral solid dose tablets, as well as two businesses in our personal care business, biofunctionals, and preservatives. Taking a closer look at pharma, the injectable business is making good progress across early, mid, and commercial stage pipeline activity. The number of biotech development pipeline projects increased in the quarter, totaling 160 programs. Projects in development are progressing through the evaluation stage. Vitel Ultra Pure has already realized its first commercial sales within two months of launch, ahead of expectation.

Functional and preserve this taking.

Guillermo Novo: Taking a closer look at pharma the injectable business is making good progress across early mid and commercial stage pipeline activities. The number of biotech development pipeline projects increased in the quarter totaling 160 programs.

Kevin Willis: Ongoing free cash flow improved to $66 million for the quarter, up from a $21 million use of cash in the prior year quarter, primarily reflecting changes in working capital resulting from our prudent inventory management, as well as reduced incentive compensation payout. Now, let's review the results of each of our four operating segments; please turn to slide 10. Within Life Sciences, normalize global supply of PVP, and reduced demand in pharma versus a strong prior year period. Nutraceuticals have maintained a strong recovery versus a week prior year period, while sales to nutrition and markets remained challenged. Overall pricing for Life Sciences was favorable. However, Life Sciences sales declined by 3% to $200 million while adjusted EBITDA decreased by 8% to $48 million; adjusted EBITDA margin decreased to 24%, primarily reflecting negative sales and production volumes partially offset by favorable prices; please turn to slide 11. Weakened demand negatively impacted personal care in the quarter, primarily within the skin and oral care segments, partially offset by strength and hair.

Guillermo Novo: Projects and development are progressing through the evaluation stages.

Guillermo Novo: <unk> Ultra pure has already realized first commercial sales within two months of launch ahead of expectations.

Guillermo Novo: Similarly, the OSD film coatings business successfully secured new customer wins in key geographies and continues to strengthen customer intimacy as.

Guillermo Novo: Similarly, the OSD Film Codings business successfully secured new customer wins in key geographies and continues to strengthen customer intimacy as we build local support. Shifting to personal care, the Biofunctionals Business Commission, a new production facility in Nanjing, China, which I had the pleasure of visiting last week during my China trip. The ability to innovate and purchase materials locally, produce in-country, and supply products that are tailored to local preferences is a source of differentiation and advantage in the region. The preservatives business has established laboratories around the world to enable the same level of service independent of geography and our focus on developing multifunctional preservatives. All four business lines took steps to accelerate globalization activities and remain hyper-focused on implementing their respective business models. Please turn to slide 22.

Guillermo Novo: We built local support.

Guillermo Novo: Shifting to personal care, the Biopharma <unk> business Commission, a new production facility in Nanjing, China, which I had the pleasure of visiting last week during my China trip.

Guillermo Novo: The ability to innovate.

Guillermo Novo: And purchase materials locally produce in country and supply products that are tailored to local preferences is a source of differentiation and advantage in the region.

The preservative business has established labs around the world to enable the same level of service independent of geography, and our focus on developing multi functional preserve risks all four business lines took steps to accelerate globalization activities and remain hyper focused on implementing their respective business.

Guillermo Novo: Plants.

Kevin Willis: Our Evoca business catering to the fragrance market remains challenging. Overall, pricing for personal care was favorable. In the quarter, personal care sales declined by 7% to $129 million, while adjusted EBITDA declined 31% to $22 million.

Guillermo Novo: Please turn to slide 22.

Guillermo Novo: Innovation is a fundamental component of our growth strategy.

Guillermo Novo: We have oriented the company around innovation and are investing in both our existing and new technology platforms.

Guillermo Novo: As we shared during the 2023 innovation day Ashland has a rich history of leadership positions within existing technologies. We are building the same in our new platforms.

Guillermo Novo: Innovation is a fundamental component of our growth strategy. We have oriented the company around innovation and are investing in both our existing and new technology platforms. As we shared during 2023 Innovation Day, Ashland has a rich history of leadership positions within existing technologies.

Kevin Willis: Pricing over raw material dynamics was sustained, but margins were negatively impacted by lower sales and production volume; please turn to slide 12. Specialty additives were impacted by reduced demand, though the architectural coding in market continues to be less impacted than others in the business. For the quarter, specialty additive sales declined by 15% to $122 million, while adjusted EBITDA declined by 74% to $6 million, primarily reflecting production volume and sales. Pricing turned negative in the quarter versus the prior year quarter, but was offset by favorable raw materials; please turn to slide 13. Intermediates reported sales of $33 million, down 39% compared to the prior year, driven by lower pricing and volume.

Guillermo Novo: As a reminder, the new technology platforms. We discussed included our bio resorbable polymers are transformed vegetable oils are novel cellular low six super waiting agents liquid cellulose plus as well as multi functional starch and ph neutralized.

Guillermo Novo: We're building the same in our new platforms. As a reminder, the new technology platforms we discussed included our bioresorbable polymers, our transformed vegetable oils, our novel cellulosics, super whiting agents, liquid cellulose plus, as well as multifunctional starch and pH neutralizers, both of which are launching soon. The new platforms all share similar themes.

Guillermo Novo: Both both of which are launching soon.

Guillermo Novo: The new platforms off share similar themes.

Guillermo Novo: These technologies are scalable.

Guillermo Novo: We are commercializing in several market segments, which increases our overall growth opportunity.

Guillermo Novo: There are tunable, we're working with customers to tailor the technology to their specific needs.

Guillermo Novo: These technologies are scalable. We are commercializing them in several market segments, which increases our overall growth. They're tunable.

Guillermo Novo: And the technologies have multiple multiple functionalities they create create value beyond the one per one drop in replacements multi function offers the potential to avoid performance trade offs in our customers' products.

Kevin Willis: Intermediates reported adjusted EBITDA of $10 million compared to $23 million in the prior year, and the adjusted EBITDA margin declined to 30.3%, primarily reflecting lower prices. Please turn to slide four. Ashland continues to have a strong financial position following another quarter of robust ongoing free cash flow generation. As of the end of December, we had cash on hand of approximately $440 million, with total available liquidity of roughly $1 billion. Our net debt was $901 million, which is about 2.1 times the amount of leverage.

Guillermo Novo: We're working with customers to tailor the technology to their specific needs, and the technologies have multiple functionalities. They create value beyond a one for one drop in replacement; multifunction offers the potential to avoid performance trade-offs in our customers' products.

Guillermo Novo: For the last few months, our leadership teams have presented our new technology platforms to many of our customers in personal care coatings and life Science I'm happy to say that they were received with a high level of interest and excitement we expect to start more specific collaboration projects with many of our customers.

Guillermo Novo: For the last few months, our leadership teams have presented our new technology platforms to many of our customers in personal care, coatings, and lifestyles. I'm happy to say that they were received with a high level of interest and excitement. We expect to start more specific collaboration projects with many of our customers. Our coherent innovation strategy with a hyper-focus on execution has yielded near-term updates in our new technology platforms that I would like to share. We continue to advance the development and sale of these platforms, commercializing products in transformed vegetable oils and super wetters that are gaining customer adoption and growing sales via the sales opportunity pipeline. We're excited about the discoveries made for transformed vegetable oils in architectural coatings and the positive testing in crop care for seed coating.

Guillermo Novo: Our coherent innovation strategy with a hyper focus on execution has yielded near term updates and our new technology platforms that I would like to share.

Kevin Willis: We have no floating rate debt outstanding, no long-term debt maturities for the next three years, and all of our outstanding debt is subject to investment grade style credit. As Guillermo noted, we continue to believe Ashland stock is an attractive use of capital and deployed $100 million to repurchase 1.2 million shares during the quarter, bringing the total over the last 30 months to $1.05 billion deployed and 11.1 million shares retired. We have $900 million remaining under the current Evergreen share repurchase authorization.

Guillermo Novo: We continue to advance the development and sale of these platforms.

Guillermo Novo: Commercial we commercialize products.

Guillermo Novo: Transport vegetable oils, and Super weathers that are gaining customer adoption and growing sales.

Guillermo Novo: The sales opportunity pipeline.

Guillermo Novo: We're excited about the discoveries made poor transform vegetable oils and architectural coatings and the positive testing and crop care core seed coatings.

Guillermo Novo: So super wedding agents platform continues to expand as we work to launch within crop care.

Kevin Willis: We are prudently managing inventory during a period of uncertainty. Inventory levels have decreased $136 million compared to the prior year quarter and $38 million sequentially, which better positions us to produce the Overall, Working Capital Management supported the generation of $66 million of ongoing free cash flow in the quarter, delivering a compelling 94% adjusted EBITDA conversion. We are investing in our existing businesses and technology platforms to grow organically and continue to pursue our strategy of enhanced profitable growth through targeted bolt-on M&A opportunities focused on pharma, personal care, and COTA. Ashland's balance sheet is well positioned to continue to give us the flexibility to pursue our targeted growth strategy as we reward our shareholders with a strong dividend policy and continued share reversal. With that, I'll now provide an update on the execution pillar of our strategic priorities in addition to an updated outline. Please turn to slide 16.

Guillermo Novo: The development within the Pes neutralized platform is advancing with a planned launch later this year.

Guillermo Novo: Sales development and testing of other new platforms is moving well and we will share updates accordingly in future calls.

Guillermo Novo: We're all excited with the progress made the continued discoveries and the customer feedback.

Guillermo Novo: The Super Wedding Agents platform continues to expand as we work to launch within Crop Care. The development within the pH Neutralizer platform is advancing with a planned launch later this year. Sales, development, and testing of other new platforms is moving well, and we will share updates accordingly in future calls. We're all excited about the progress made, the continued discoveries, and the customer feedback. Although we expect most of the impact of these investments to begin in fiscal year 2025, we will work diligently to accelerate their impact into fiscal year 24 and provide periodic updates on our progress. Please turn to slide 23. In closing, our approach to this fiscal year is straightforward.

Guillermo Novo: Although we expect most of the impact of these investments to begin in fiscal year 2025, we will work diligently to accelerate their impact into fiscal year 'twenty four and provide periodic updates on our progress.

Guillermo Novo: Please turn to slide 23.

Guillermo Novo: In closing our approach to this fiscal year is straightforward build resilience by focusing on clarity of action in the face of uncertainty.

Guillermo Novo: We recognize that these are challenging times for our industry, but we also recognize the opportunities that lie ahead.

Guillermo Novo: Recent demand trends are promising and we are cautiously optimistic the.

Guillermo Novo: The Ashland team is poised to capitalize on improved improving market conditions, but we will continue production with production discipline. During this period of uncertainty.

Kevin Willis: The key aspect of our Execute strategic priority captures needed portfolio optimization to address underperforming businesses that are not core and where we do not have technology or market leadership. As previously outlined in our fourth-quarter 2023 earnings call, we have four primary portfolio actions underway, divesting our nutraceuticals business, optimizing and consolidating our CMC and MC industrial businesses, as well as rebalancing our global HEC production network. The nutraceuticals process is underway and going well. Nutraceuticals is a high quality business and continues to reform, as evidenced by its recent strong recovery, but outside of our core business and strategy.

Guillermo Novo: Build resilience by focusing on clarity of action in the face of uncertainty. We recognize that these are challenging times for our industry, but we also recognize the opportunities that lie ahead. Recent demand trends are promising, and we are cautiously optimistic. The Ashland team is poised to capitalize on improving market conditions but will continue production with production discipline during this period of uncertainty. We will stay on strategy, maintain operating and capital allocation discipline, and take appropriate actions to maximize fiscal year 2024 performance.

Guillermo Novo: We will stay on strategy maintain operating and capital allocation discipline and take appropriate actions to maximize fiscal year 2024 performance. This includes optimizing our portfolio focusing on our core businesses and perhaps more importantly, continuing to invest in our long term growth strategy.

Guillermo Novo: We're confident in the quality and resilience of the markets we serve.

Guillermo Novo: And our future I want to thank the Ashland team once again for their leadership and proactive ownership of their businesses in a very dynamic environment.

Speaker Change: Thank you for joining us and operator, Abigail if we can move to Q&A.

Abigail: Thank you at this time, we will conduct a question and answer session. As a reminder to ask a question you will need to press star one on your telephone and wait for your name to be announced to withdraw. Your question. Please press star one again, one moment for our first question.

Kevin Willis: The process has gained significant interest from higher-value owners, and we expect to sign and close a transaction within this fiscal year. Ashland's most advanced portfolio action involves optimizing and consolidating our CMC business. We are exiting low-margin business and migrating select CMC volumes into Alizé, France, resulting in a closure of CMC production capacity in Hopewell, Virginia, during the fiscal second quarter of 2024. This work stream led to $21 million of accelerated depreciation expense during the quarter.

Unknown Executive: This includes optimizing our portfolio, focusing on our core businesses, and, perhaps more importantly, continuing to invest in our long-term growth strategy. We are confident in the quality and resilience of the markets we serve and our future. I want to thank the Ashland team once again for their leadership and proactive ownership of their businesses in a very dynamic environment. Thank you for joining us and for operator, Abigail, if we could move to Q&A. Thank you. At this time, we'll conduct the question and answer session. As a reminder, to ask a question, you will need to press star 11 on your telephone and wait for your name to be announced.

Abigail: Our first question comes from David Begleiter with Deutsche Bank. Your line is open.

David I. Begleiter: Good morning.

David I. Begleiter: Guillermo on the sequential strength you are seeing can you describe what end markets and what geographies is occurring in and just how strong is this in February versus January.

David I. Begleiter: We're seeing it across all the segments as we said.

Kevin Willis: Other actions to improve Ashland's MC Industrial and HEC businesses continue to be assessed and will be communicated in due course. Meanwhile, as we take these actions, we will be exploring opportunities to leverage these assets to repurpose and support other strategic priorities. We continue to expect the Portfolio Optimization activities to be complete by the end of calendar year 2024. In summary, all portfolio actions are on track, and we're committed to acting with appropriate urgency to deliver on our commitments, including the reduction of all stranded costs that result from these actions. Please turn to slide 17. It's highlighted on the left.

Speaker Change: Last year, the pharma segment came out of a very strong year. So that's normalizing a little bit.

Speaker Change: Firstly on the Pvp with some competitors coming back into into the market, but the rest of them, we're seeing it pretty broad based.

David L. Begleiter: To withdraw your question, please press star 11 again. One moment for our first question. Our first question comes from David Begleiter with Deutsche Bank. Your line is open. Thank you. Good morning. Guillermo, on the sequential strength you are seeing, can you describe what end markets and what geographies this is occurring in? And just how strong is this?

Speaker Change: If I look at December January and February December was stronger we did see some push back of orders into there was push pushing back just ended the year things.

Speaker Change: But even with those pushback December came in stronger.

In January continued to strengthen so it is building up if we look at daily rates. The January and February are sort of maintaining.

Guillermo Novo: February versus January. You know, we're seeing it across all the segments. As we said last year, the pharma segments came out of a very strong year. So that's normalizing a little bit, especially on the PVP with some competitors coming back into the market. But the rest of them, we're seeing a pretty broad base.

Kevin Willis: Our portfolio actions will have a meaningful impact on the company's profitability as well as capital and operational efficiency to deliver stronger performance. Specifically, once the actions are fully complete, we expect expanded adjusted EBITDA margins of 200 to 250 basis and an increase in return on net assets of 150 to 200 basis. 10 to 15% improvement in network utilization rates and impacted product lines as select SKUs are shifted within the network and a 10% reduction in working capital as well as capital investment avoidance going forward. We expect a modest reduction in fiscal year 2024 sales from our portfolio actions, totaling $30 to $40 million of lower sales related to CMC and industrial MC versus 2023. The impact of a nutraceutical sale will be dependent on the timing of closing, but the business is averaging quarterly sales of approximately $30 million over the past 12 months.

Speaker Change: Consistent daily rate.

Speaker Change: But the question really is going to be March.

Speaker Change: January and February it's good that they are up versus expectation in more normalized but usually the March April is really when the season starts from a sales perspective, so when we compare it to prior year our production remained lower.

Guillermo Novo: You know, if I look at December, January, and February, December was stronger; we did see some pushback of orders because there was a push back on just end of the year things. But even with those pushbacks, December came in stronger, and January continued to strengthen. So it's it is building up. If you look at daily rates, January and February are sort of maintaining a consistent daily rate.

But the sales are less are clearly picking up the one area that we're looking at right now just for clarity.

Speaker Change: Between within the quarter I don't think its going to impact.

Speaker Change: Q2 to Q3, but some of the issues in Europe with strikes in shipping.

Speaker Change: Are we going to be able to today ship everything and some things might go into February but that would just mean a stronger February for us. So it's a pretty broad momentum.

Guillermo Novo: But the question really is going to be March. You know, January and February, it's good that they're up versus expectation and more normalized. But usually, you know, March and April are really when the season starts from a sales perspective. So when we compare it to the prior year, our production remained lower, but the sales are clearly picking up. The one area that we're looking at right now, just for clarity, is, you know, within the quarter. I don't think it's going to impact, you know, Q2 to Q3. But some of the issues in Europe with strikes and shipping, you know, are we going to be able to ship everything today, and, you know, some things might go into February, but that would just mean a stronger February for us. So it's a pretty broad momentum. And just in Q2, do you expect any impact? And if so, how much from inventory and inventory control?

Speaker Change: And just in Q2 do you expect any impact and if so how much from inventory inventory control actions.

Speaker Change: So we're going to maintain where we are today. So so that is really going to be in our outlook both for the quarter, but more importantly, I think it's for the second half of the year.

Kevin Willis: And lastly, we expect no material sales impact from rebalancing our HEC production network in fiscal year 2020. Looking ahead to fiscal year 2025, we expect sales to be reduced by an additional $130 to $150 million versus fiscal year 2024 as a result of the completed portfolio actions with little to no impact on EBITDA. We are committed to eliminating the stranded costs associated with these actions and recapturing lost gross profit, making them EBITDA neutral. There are approximately $80 million in stranded costs and $20 million of reduced gross profit associated with our actions.

Speaker Change: No.

Speaker Change: It's a two to one ratio right now between volume and sales volume and production.

Speaker Change: If things pick up and we feel more confident.

Speaker Change: Going to dial in the production depending on confidence. We now have we are back to pre COVID-19 in terms of visibility. So the issue that we have now.

Speaker Change: 30 days visibility, we don't have this order book like like last two years. We've had 30 90 days of order. So it was much easier to see what was happening from our customers now we have to really count on our.

Speaker Change: Our models are forecasting models clearly what's happened in our models statistically arent as robust because just the last few years. The last two years special last year that were down so we're really trying to read into that normalization.

Guillermo Novo: So we're going to maintain where we are today. So that is really going to be, you know, in our outlook, both for the quarter, but more importantly, I think it's for the second half of the year. It's a two to one ratio right now between volume in sales and volume in production. If things pick up and we feel more confident, you know, we're going to ramp up production depending on confidence. We now have; we're back to pre-COVID in terms of visibility.

Kevin Willis: The majority of the stranded costs are directly related to manufacturing and will be eliminated after production is consolidated, and the lost gross profit will be offset by improved utilization in the plant network. While we're still finalizing the plans and specific cash costs for some of our portfolio actions, we expect the CMC and Industrial MC working capital release and capital avoidance to fund the one-time cash cost associated with our plan. Now on to our album. Please turn to slide eight.

Speaker Change: The key points that we look out in terms of our demand outlook. One is most of the customers are saying that.

Speaker Change: The Destocking is behind there's obviously, maybe specific customers can have a little bit but in general the destocking is.

Speaker Change: A bit behind us.

Speaker Change: Two that we have three three months now of visibility that is improving sequentially.

Guillermo Novo: So the issue that we have now is, 30 days of visibility. We don't have this order book like the last two years. We had 30, 90 days of orders. So it was much easier to see what was happening with our customers. Now we have to really count on our models or forecasting models. Clearly, what's happened, our models statistically aren't as robust, because just the last few years, the last two years, especially last year, we're down. So we're really trying to read into that normalization.

Speaker Change: And and continue to gain strength and three is just what our customers. If you look at our customers' earnings calls right now and their outlooks.

Kevin Willis: As we look ahead into Q2 and fiscal year 2024, the major question is the timing and magnitude of the demand recovery. As Guillermo mentioned, current demand patterns indicate recovery is underway, with our sales volumes beginning to align with customer and market demand trends. Specifically, January sales are demonstrating a strong month-over-month recovery of approximately 25%, which is roughly in line with January 2023, a period before destocking intensified. In addition, February is shaping up to be a promising month based on order patterns. As Guillermo indicated, March is the linchpin month of the quarter and will largely define the magnitude of the recovery we are seeing in January and February.

Speaker Change: Projection of volumes being flat for at least the markets that we serve being flattish.

Speaker Change: So if they remain flat.

Speaker Change: Last year, they were flattish and we were down this year. There is there going to be flattish, we should be getting back to this connection to their own demand and thats sort of the out of the model that we're using at this point in time.

Guillermo Novo: The key points that we look at in terms of our demand outlook, one is that most of the customers are saying that the de-stocking is behind. There's obviously maybe specific customers can have a little bit, but in general, the de-stocking is a bit behind us. We have three, three months now of visibility that is improving sequentially. And, and will continue to gain strength.

Is there a number of risk and 31 million in Q1, we can use.

Speaker Change: And we haven't.

Speaker Change: But quarter on quarter.

Speaker Change: It'll be last year.

Speaker Change: Kevin and you can comment is we had <unk>.

Kevin Willis: While these are clearly positive data points, the critical question is how sustainable is this demand normalization? The current trends suggest a demand recovery occurring in our second quarter with potential momentum heading into our second half of the fiscal year. We are encouraged by recent demand activity for our products as well as positive economic, consumer, and industry data. The next critical assumption is margin management. Depending on margin recovery, competitive pressures will vary across different segments. Therefore, maintaining pricing discipline will be important during our second quarter but also throughout the year. We do expect pricing pressures to be partially offset by raw material deflation, but the timing will be important as we work through existing inventory. The Ashland team is keenly focused on pricing versus raw material balance for the year, which serves as a risk and an opportunity for overall results.

Speaker Change: Stronger above sales production.

Speaker Change: Production in Q1 and Q2 so so.

Speaker Change: The situation will flip more in the backend of the year, where we took the actions last year, but Kevin you might want to add more color.

Guillermo Novo: And three is just what our customers, if you look at our customers' earnings calls right now, and their outlooks, it's projections of volumes being flat for at least the markets that we serve being flattish. So if they remain flat, you know, last year, they were flattish, and we were down this year, there's, they're going to be flattish, and we should be getting back to this connection to their own And that's sort of the outlook, the model that we're using at this point in time. So is there a number versus 31 million in Q1? We have a quarter on quarter, you know; it'll be meaner than last year.

Kevin Willis: Yes sure sure so Dave based on the outlook that we have for Q2 and the full year, our inventories pretty well positioned right now and we wouldn't see we wouldn't see any need to take.

Kevin Willis: Significant inventory control actions throughout the balance of the year. So that's the first thing.

Kevin Willis: The second part for Q2 versus last year.

Kevin Willis: We started slowing down I would say our production later in the quarter in Q2, and so in some of our facilities so year over year.

Kevin Willis: The guide would imply that were kind of flattish on on the absorption piece of the equation.

John Kevin Willis: Kevin, and you can comment is that we had stronger sales and production in Q1 and Q2. So, you know, the situation will flip more in the back end of the year where we took the actions last year, but Kevin, you might wanna add more color. Yeah, sure.

Kevin Willis: We have committed to produce to demand, and we're much better positioned to do so than our prior year, when, in hindsight, production in the first half of the year meaningfully outpaced demand, requiring inventory actions later in the year. We do expect absorption benefits as demand normalizes, which should be much more impactful during the second half of the fiscal year as compared with 2023. That said, we are continuing to manage production activities to maintain inventory. Taking all of this into account, for the fiscal second quarter, the company expects sales in the range of $565 to $585 million and adjusted EBITDA in the range of $115 to $125 million.

Kevin Willis: This Q2 versus last Q2, I mean, there can be a little bit of play in that but generally generally pretty flattish overall thank.

Speaker Change: Thank you very much.

Speaker Change: Sure.

Speaker Change: One moment our next question.

Speaker Change: Our next.

Speaker Change: Question comes from Josh Spector with UBS. Your line is open.

John Kevin Willis: So Dave, based on the outlook that we have for Q2 and the full year, our inventory is pretty well positioned right now. We wouldn't see any need to take significant inventory control actions throughout the balance of the year. So that's the first.

Speaker Change: Yes.

Josh Spector: Yes, hi, good morning.

Josh Spector: I actually wanted to follow up on a similar point there so rather than year on year, maybe if we talk sequentially second quarter into the third quarter or second half.

John Kevin Willis: I think the second part, for Q2 versus last year, we started slowing down, I would say, our production later in the quarter in Q2 in some of our facilities. So, year over year, the guide would imply that we're kind of flattish on the absorption piece of the equation this Q2 versus last Q2. There can be a little bit of play in that, but generally pretty flattish.

Josh Spector: You you expect EBITDA to step up another.

$25 million or so per quarter.

Does that is that predicated on your production matching your demand or are you, making the point that in second half you might produce more than banana to try to rebuild inventories. So wondering what needs to happen in your base case for that step up into the second half.

Kevin Willis: For the full year, we expect sales in the range of $2.15 to $2.25 billion and adjusted EBITDA in the range of $460 to $500 million. Based on recent demand trends, we have removed the downside demand recovery scenario that we discussed on our last earnings call from our range of possible outcomes. Key risks and opportunities are listed on the slide, but aside from demand recovery, variability in plant loading, and price versus raw material balance will be critical for upcoming financial results. And now, let me turn the call back to Guillermo to provide an update on our strategic priorities. Guillermo?

Josh Spector: We are not forecasting building inventory, so usually rebuild inventory now and that we produce to demand because we're maxed out in the back end of the year. So we're still forecasting to demand if you look at our outlook.

Joshua David Spector: One moment for our next question. Our next question comes from Josh Spector with UBS. Your line is open. Yeah, hi, good morning.

Josh Spector: The low end is going to be driven more by sales slowing down.

Guillermo Novo: Um, I actually want to kind of follow up on a similar point there. So rather than year on year, maybe if we talked sequentially, second quarter into the third quarter or second half. You expect EBITDA to step up another, say, $25 million or so per quarter. Is that predicated on your production matching your demand, or are you making the point that in the second half, you might produce more than demand to try to rebuild inventory? So I'm wondering what needs to happen in your base case for that step up into the second half. We are not forecasting building inventory.

Josh Spector: The move to the higher end has a much more of a mix of both higher volume sales and we would start to increase production. So the production.

Josh Spector: Impacts would be more of.

Josh Spector: The upside drivers.

Josh Spector: As we go into the into the year and the other thing that I would say it also because of the production.

Josh Spector: Which segments.

Josh Spector: Recover are important because.

Josh Spector: Outside on the manufacturing.

Josh Spector: <unk> has a big impact in things like our specialty additives as an example, so that recovers.

Josh Spector: That will also strengthen.

The mix.

Josh Spector: Impac, Kevin do you have any other comments you that.

Kevin Willis: Yes, yes.

Kevin Willis: Go ahead.

Kevin Willis: I'll go ahead and add a couple of things.

Guillermo Novo: So usually, we build inventory now, and then we produce to demand because we're maxed out at the back end of the year. So we're still forecasting to demand. If you look at our outlook, the low end is gonna be driven more by sales slowing down. The move to the higher end is much more of a mix of both higher volume sales and, you know, we would start increased production. So the production impacts would be more of an upside driver as we go into the year. And the other thing that I would say is also because of production, you know, which segments recover are important because there's, you know, the upside on the manufacturing has a big impact and things like our specialty additives, as an example, so that recovers, that will also strengthen, you know, the mix impact. Kevin, do you have any other comments on that?

Kevin Willis: If you look at our Q1 actual the implied Q2 based on the guide and then think about the midpoint of the full year guide what that would imply is that Q3 and Q4 would be approximately equal to Q2 of last year from an EBITDA perspective.

Guillermo Novo: Kevin shared, we are making good progress on these actions, and the resulting impact will strengthen Ashland's performance. Our globalized and innovative priorities are focused on profitable growth. The Ashland team is making progress in both areas. Please turn to slide 21.

Kevin Willis: We don't we don't plan to build inventory, we don't see a need to build inventory, we're going to continue to produce to demand I think the.

Kevin Willis: The important point here is that is that as demand ramps and we expect it to continue to do so based on.

Guillermo Novo: Activities are underway to globalize four of our higher growth and higher margin business lines, which include two businesses within pharma, our injectables business, and our film coatings for oral solid dose tablets, as well as two businesses in our personal care business, biofunctionals, and preservatives. Taking a closer look at pharma, the injectable business is making good progress across early, mid, and commercial stage pipeline activities. The number of BioTel development pipeline projects increased in the quarter, totaling 160 programs.

Kevin Willis: Based on.

Kevin Willis: The guide that we're giving the outlook, we're giving that would imply that we will need to produce more and there is and theres. Good levers just like you saw a negative leverage last year as we took significant inventory actions, particularly in Q4.

Kevin Willis: There's a lot of positive momentum that comes out of that as well and then as you go forward Digest balances itself out into you know into a more into a more normal flow, but we would we would expect much better absorption in the second half of the year for sure than than we saw last year in the second half and also frankly.

John Kevin Willis: Yeah, yeah, I'll go ahead and, you know, I'll go ahead and add a couple things. If you, Josh, if you look at our Q1 actual, the implied Q2 based on the guide, and then think about the midpoint of the full-year guide, what that would imply is that Q3 and Q4 would be approximately equal to Q2 of last year from an EBITDA perspective. We don't plan to build inventory; we don't see a need to build inventory. We're going to continue to produce on demand. I think that the important point here is that as demand ramps up, and we expect it to continue to do so based on. Based on the guide that we're giving, the outlook we're giving, that would imply that we'll need to produce more. And there's good leverage, just like you saw negative leverage last year, as we took significant inventory actions, particularly in Q4. And there's a lot of positive momentum that comes out of that as well. And then, as you go forward, that just balances itself out into a more normal flow.

Really much better than what we expect in the first half of this year.

Guillermo Novo: Projects in development are progressing through the evaluation stage. Vitel Ultra Pure has already realized its first commercial sales within two months of launch, ahead of expectation. Similarly, the OSD Film Codings business successfully secured new customer wins in key geographies and continues to strengthen customer intimacy as we build local support. Shifting to personal care, the Biofunctionals Business Commission, a new production facility in Nanjing, China, which I had the pleasure of visiting last week during my China trip. The ability to innovate and purchase materials locally, produce in-country, and supply products that are tailored to local preferences is a source of differentiation and advantage in the region. The preservatives business has established laboratories around the world to enable the same level of service, independent of geography, and our focus on developing multifunctional preservatives. All four business lines took steps to accelerate globalization activities and remain hyper-focused on implementing their respective business models. Please turn to slide 22.

Thanks, and I appreciate that and just thinking about the range of outcomes from the sales perspective, what that means. So you made some interesting comments about demand reconnection in your customers' demand flat or a couple of years, maybe run rating down 10% to 15% volumes I guess, if you go through the bridge of where things could.

Kevin Willis: Yeah, you talked about maybe 1% to 2% lower volumes because of your exits of certain businesses.

Is there anything else that limit that.

Kevin Willis: Reconnection, so customers holding less inventory any share shifts or what's the potential volume regain you could see if you actually see further sequential improvements either this year or just longer term.

Kevin Willis: Yes.

Speaker Change: So let me come in.

Speaker Change: Kevin you can add some color, but yes, if you look at the the volume drivers for us in terms of share and reconnect. So our first step is just reconnecting to our customers. We have a lot of contracts with customers. So it's really about them.

John Kevin Willis: But we would expect much better absorption in the second half of the year, for sure, than we saw last year in the second half. And also, frankly, much better than what we expect in the first half of the year. Thanks, and I appreciate that.

Guillermo Novo: Innovation is a fundamental component of our growth strategy. We have oriented the company around innovation and are investing in both our existing and new technology platforms. As we shared during 2023 Innovation Day, ASLAN has a rich history of leadership positions within existing technologies.

Kevin Willis: Not destocking and now that our alignment goes with their volumes and I think this is where we don't have perfect clarity and the models that we have are showing improvement, but we're not showing that we're going to necessarily reach.

Joshua David Spector: And just thinking about the range of outcomes from a sales perspective of what that means. So you made some interesting comments about demand reconnection and, you know, your customers' demands flat over a couple of years; you're maybe running ratings down 10% to 15% volumes. I guess if you go through the bridge of where things could be, you talked about maybe 1% to 2% lower volumes because of your exits from certain businesses. Is there anything else that limits that reconnection?

Kevin Willis: They are flat volumes are but we are showing significant improvement. So we're closing our gap between them and so there could be some upside there if things pick up a little bit more other than that I think we really know get into.

Guillermo Novo: We are building the same in our new platforms. As a reminder, the new technology platforms we discussed included our bioresorbable polymers, our transformed vegetable oils, our novel cellulosics, super whiting agents, liquid cellulose plus, as well as multifunctional starch and pH neutralizers, both of which are launching soon. The new platforms all share similar themes.

Kevin Willis: Share gains innovation growth, what's going to drive those volume activities, and that's really where we're focusing on our core businesses.

Kevin Willis: Hec Aqua flow.

Guillermo Novo: So customers holding less inventory, any share shifts, or what's the potential volume regain? You could see if you actually see further sequential improvements, either this year or just in the longer term. So, so, so let me comment and Kevin, you can add some color, but if you look at the volume drivers for us in terms of share and reconnect,

Kevin Willis: Minnesota, Crucell Pvp that those kinds of products and I think those if they grow they're higher margins for us.

Kevin Willis: And where we're taking the sales reductions are more in businesses that don't generate a lot. So.

Guillermo Novo: These technologies are scalable. We are commercializing them in several market segments, which increases our overall growth. They're tunable.

Kevin Willis: We're taking off the.

Kevin Willis: Absorption noise.

Guillermo Novo: We're working with customers to tailor the technology to their specific needs, and the technologies have multiple functionalities. They create value beyond a one-for-one drop-in replacement; multifunction offers the potential to avoid performance trade-offs in our customers' products.

Of those those low end businesses so.

Guillermo Novo: So our first step is just reconnecting to our costs. We have a lot of contracts with customers, so it's really about them not being stalked.

Kevin Willis: The mix I think as we look forward, it's not just a re hitting the volume growth is where they are we're hitting them.

Guillermo Novo: And now that our alignment goes with their volumes, and I think this is where we don't have perfect clarity. And you know, the models that we have are showing improvement. But you know, we're not showing that we're going to necessarily reach where their flat volumes are, but we are showing significant improvement. So we're closing the gap between them and us.

Kevin Willis: <unk>.

Kevin Willis: Higher value.

Kevin Willis: Segments or and are we hitting them in the segments that have the more absorption upside in terms of that recovery impact and that would be mostly in our cellulose specialty outlets as well as our our intermediates.

Guillermo Novo: For the last few months, our leadership teams have presented our new technology platforms to many of our customers in personal care, coding, and life science. I'm happy to say that they will receive them with a high level of interest and excitement. We expect to start more specific collaboration projects with many of our customers. Our coherent innovation strategy with a hyper-focus on execution has yielded near-term updates in our new technology platforms that I would like to share. We continue to advance the development and sale of this platform, commercializing products in transformed vegetable oils and super wetters that are gaining customer adoption and growing sales via the sales opportunity pipeline. We're excited about the discoveries made for transformed vegetable oils in architectural coatings and the positive testing in crop care for seed coating.

Kevin Willis: And so I think that's.

<unk>.

Speaker Change: Very fair it out and let me let me just just add in terms of the outlook.

Guillermo Novo: So there could be some upside there if things pick up a little bit.

Speaker Change: We do not anticipate any major share shift pro or con theres always some of that that happens, but we don't anticipate that share gains or anything like that in terms of supporting the outlook. So this is just kind of normal operations that we expect to.

Guillermo Novo: Other than that, I think we really now get into share gains, innovation growth, what's going to drive those volume activities. And that's really where we're focusing on our core businesses. HEC, Aquaflow, Menacell, Clusell, PVP, those kinds of products.

Speaker Change: To see a nice pickup in the second half in terms of.

Speaker Change: What we're projecting versus what we see from our customers and say, we're the outlook would presume that we close that gap.

Guillermo Novo: And I think that if they grow, there are higher margins for us. And are we hitting them in the segments that have the more absorption upside in terms of that recovery impact? And that would be mostly in our cellulosics and specialty additives, as well as our, you know, our intermediates. And say that okay, that's very, very fair.

Speaker Change: But not completely I mean, theres theres play in there I would say at the upper end of the of the outlook.

Speaker Change: It's a more complete closure at the lower end it's less.

Speaker Change: In the Middle I think as is frankly, just where were comfortable with based upon how we see.

Speaker Change: Order pattern flowing how we see demand.

Speaker Change: Flowing through as well et cetera. So.

Guillermo Novo: Now, let me just add in terms of the outlook. We do not anticipate any major share shift pro or con. There's always some of that that happens.

Speaker Change: Said another way there's nothing extreme in those numbers Theres. Nothing you wrote that has to happen. There is also no presumption that anything particularly negative is going to occur we are using the facts as we currently have them and see them.

Guillermo Novo: The Super Wedding Agents platform continues to expand as we work to launch within Crop Care. The development of the pH Neutralizer Platform is advancing, with a planned launch later this year. Sales, development, and testing of other new platforms is moving well, and we will share updates accordingly in future calls. We're all excited about the progress made, the continued discoveries, and the customer feedback. Although we expect most of the impact of these investments to begin in fiscal year 2025, we will work diligently to accelerate their impact into fiscal year 2024 and provide periodic updates on our progress. Please turn to slide 23. In closing, our approach to this fiscal year is straightforward.

John Kevin Willis: But we don't anticipate big share gains or anything like that in terms of supporting the outlook. So this is just kind of normal operations that we expect to see a nice pickup in the second half in terms of what we're projecting versus what we see from our customers. The outlook would presume that we close that gap. But not completely. I mean, there's play in there.

Speaker Change: Okay. Thank you.

Speaker Change: One moment our next question.

Speaker Change: Our next question comes from Mike Harrison with Seaport Research Partners. Your line is open.

Hi, good morning.

Michael J. Harrison: Hey, Mark.

Michael J. Harrison: You mentioned this consolidation that's going on with your CMC production at Atlas.

John Kevin Willis: I would say at the upper end of the outlook, it's a more complete closure. At the lower end, it's less, and in the middle, I think, is frankly just where we're comfortable with based upon how we see the order pattern flowing, how we see demand flowing through as well, etc. So said another way, there's nothing extreme.

Michael J. Harrison: In closing some CMC capacity in Hopewell.

Michael J. Harrison: Can you give a little bit more detail on the timing of those actions and then there is the benefit there just that you have better operating rates in analyst day or is there some near term plan to repurchase.

Guillermo Novo: Build resilience by focusing on clarity of action in the face of uncertainty. We recognize that these are challenging times for our industry, but we also recognize the opportunities that lie ahead. Recent demand trends are promising, and we are cautiously optimistic. The Ashland team is poised to capitalize on improving market conditions but will continue with production discipline during this period of uncertainty. We will stay on strategy, maintain operating and capital allocation discipline, and take appropriate actions to maximize fiscal year 2024 performance.

John Kevin Willis: In those numbers, there's nothing heroic that has to happen. There's also no presumption that anything particularly negative is going to occur. We're using the facts as we currently have them. Okay, thank you. One moment for our next question. Our next question comes from Mike Harrison with Seaport Research Partners. Your line is open. Hi, good morning.

Michael J. Harrison: Repurpose.

Michael J. Harrison: Those assets in Hopewell.

Michael J. Harrison: Okay.

Michael J. Harrison: I think there is there are several benefits that we're going to get one is we will be reducing our exposure on a low margin business that has a high capital intensity and high absorption of intensity. So it creates a lot of volatility with very little upside and as we.

Michael Joseph Harrison: Hey, Mike. Unknown Speaker, you mentioned this consolidation that's going on with your CMC production at Alizé in France and closing some CMC capacity in Hopewell. Can you give a little bit more detail on the timing of those actions? And then, is the benefit there just that you have better operating rates in Alizé, or is there some near-term plan to repurpose those assets in Hopewell? Okay. I think there are several benefits that we're going to get. One is we will be reducing our exposure to a low margin business that has a high capital intensity and a high absorption intensity. So it creates a lot of volatility with very little upside. And as we said on other calls, you know, 2022 was really one of the best years we've had.

Michael J. Harrison: Said another calls.

Michael J. Harrison: 2022 was was really one of the best years, we've had and we still had returns on those businesses that were not there would be lower cost of capital. So they're not sustainable long term. So we remove some of that noise.

Guillermo Novo: This includes optimizing our portfolio, focusing on our core businesses, and, perhaps more importantly, continuing to invest in our long-term growth strategy. We are confident in the quality and resilience of the markets we serve and our future. I want to thank the Ashland team once again for their leadership and proactive ownership of their businesses in a very dynamic environment. Thank you for joining us and for operator, Abigail, if we could move to Q&A. Thank you. At this time, we'll conduct the question and answer session. As a reminder, to ask a question, you will need to press star 11 on your telephone and wait for your name to be announced.

Michael J. Harrison: The second thing is that as you said, we load Alice we can improve our mix, we can take some actions that that asset and the returns that we get in.

Be much better and those will be parts of the business that we can actually invest in.

Michael J. Harrison: And grow for the future so it stabilizes.

Michael J. Harrison: The core parts of CMC that we like that we want to grow.

Michael J. Harrison: And maintain and then the last thing is yes, we are looking at how we can repurpose that purpose.

Michael J. Harrison: Didn't.

Michael J. Harrison: And the depreciation numbers, sorry, depreciation number that.

Guillermo Novo: And we still had returns on those businesses that were not, that were below our cost of capital. So they're not sustainable long term. So we remove some of that noise.

Michael J. Harrison: Kevin mentioned, that's not all of the assets we are planning to see how we can repurpose there are other some of the advanced the new Cellulosic technologies, we need the plant to make those.

Guillermo Novo: The second thing is that, as you said, we load Alize, we can improve our mix, we can take some actions that that asset will, and the returns that we get will be much better. And those will be parts of the business that we can actually invest in and grow for the future. So it stabilizes, you know, the core parts of CMC that we like, that we want to grow and maintain.

David I. Begleiter: To withdraw your question, please press star 11 again. One moment for our first question. Our first question comes from David Begleiter with Deutsche Bank. Your line is open. Thank you. Good morning. Guillermo, on the sequential strength you are seeing, can you describe what end markets and what geographies this is occurring in? And just how strong is this?

Michael J. Harrison: We could make it.

Michael J. Harrison: Parts of that plant, we can restructure.

Michael J. Harrison: CMC plan to do other cellulosic products.

Michael J. Harrison: And we're looking at how we can better manage our mix. That's those are all activities that we're looking at at this point in time. So all three of those areas would be part of the improvements and what we will see us improve margins improve.

Guillermo Novo: And then the last thing is, yes, we are looking at how we can repurpose. We didn't, in the depreciation numbers, the depreciation numbers that Kevin mentioned, that's not all the assets we are planning to see how we can repurpose. There are other, you know, some of the advanced, new cellulosic technologies. We need a plant to make those.

Michael J. Harrison: Return on capital.

Michael J. Harrison: And.

Michael J. Harrison: And really our ability to use the capital we have to focus on the better higher quality businesses. So we will allocate that capital better than to sustain these older businesses that really aren't haven't improved.

Guillermo Novo: You know, if I look at December, January, and February, December was stronger. We did see some pushback of orders into, there was pushing back just end of the year things. But even with those pushbacks, December came in stronger, and January continued to strengthen.

John Kevin Willis: We could make it in parts of that plant. We could restructure the CMC plant to make other cellulosic products. And we're looking at how we can better manage our mix. Those are all activities that we're looking at at this point in time. So all three of those areas would be part of the improvements. And what we'll see is improved margins, improved return on capital, and you know, and really our ability to use the capital we have to focus on better, higher quality. So we'll allocate that capital better than to sustain these older businesses that really haven't improved, and they're not going to improve so significantly in the future. And Mike, we would expect to close that CMC unit down by the end of this quarter, the inventory falling through, will, you know, will take longer, as we work with our customers on, on, you know, closing that part out.

Michael J. Harrison: We're not going to improve significantly in the future.

Michael J. Harrison: Mike We would expect we would expect to close on CMC unit by the end of this quarter.

Michael J. Harrison: The inventory sell through.

Michael J. Harrison: Will will take longer as we work with our customers on on close closing closing that part out and we also have processes underway too.

Guillermo Novo: So it is building up. If you look at daily rates, January and February are sort of maintaining a consistent daily rate. But the question really is going to be March.

Michael J. Harrison: Transfer of materials into Alice.

And ramp that up.

Guillermo Novo: You know, January and February, it's good that they're up versus expectation and more normalized. But usually, you know, March and April are really when the season starts from a sales perspective. So when we compare it to the prior year, our production remained lower, but the sales are clearly picking up. The one area that we're looking at right now, just for clarity, is, you know, within the quarter. I don't think it's going to impact, you know, Q2 to Q3. But some of the issues in Europe with strikes and shipping, you know, are we going to be able to ship everything today, and, you know, some things might go into February, but that would just mean a stronger February for us. So it's a pretty broad movement.

Michael J. Harrison: It's a process in and of itself almost Guillermo indicated over time.

Michael J. Harrison: We'll we'll figure out what makes sense in terms of the current CMC assets suffice it to say, we won't be making CMC in those units.

Michael J. Harrison: And potentially that can be repurposed down the road for something else and where we have a work stream focused on that as well.

Speaker Change: Alright, Thanks for that and then Kevin you mentioned.

Kevin Willis: The lower variable comp and lower equity based comp that you saw year on year in Q1.

John Kevin Willis: And we also have processes underway to transfer materials into Alizé and ramp that up, which is a process in and of itself. And as Guillermo indicated, over time, we'll figure out what, you know, what makes sense in terms of the current CMC assets. Suffice it to say, we won't be making CMC in those units. However, potentially, that can be repurposed down the road for something else, and we have a workstream focused on that. All right, thanks for that.

Kevin Willis: When does that variable comp.

Kevin Willis: Maybe flip to being a headwind year on year and I guess for the full year, how much higher should we expect variable comp and merit or cost of living increase it to be.

Kevin Willis: For the full year.

Kevin Willis: Merit has already is already flowing through we changed merit.

Kevin Willis: We changed mirror first of the year so call. It January one matters.

Guillermo Novo: And just in Q2, do you expect any impact from inventory control, and if so, how much? So we're going to maintain where we are today. So, that is really going to be important in our outlook, both for the quarter, but more importantly, I think it's for the second half of the year. It's a two to one ratio right now between volume and sales and volume and production. If things pick up and we feel more confident, you know, we're going to dial in the production depending on confidence. We now have, we're back to pre-COVID in terms of visibility.

Kevin Willis: That's that's flowing through all thats anticipated and contemplated in the outlook.

Michael Joseph Harrison: And then, Kevin, you mentioned the lower variable comp and lower equity-based comp that you saw year on year in Q1. When does that variable comp maybe flip to being a headwind year on year? And I guess for the full year, how much higher should we expect variable comp and merit or cost of living increases to be for the full year? Yeah, merit is already flowing through. We change merit first of the year, so we're going to call it January is when that happens. All that's anticipated and contemplated in the outlook. [inaudible] Most of that is equity-based comp, a very, very small portion of that is the Annual Incentive Card, more of the equity piece.

Kevin Willis:

Kevin Willis: In terms of the Q1.

Kevin Willis: Most of that is equity based comp.

Kevin Willis: Very small portion of that is because as annual incentive comp. So it's more of the equity piece I would expect the the corporate side of the equation to return to call. It more normalized more normalized levels Q2 through Q4.

Kevin Willis: <unk> timeframe.

Kevin Willis: The year over year difference from from a mirror.

Kevin Willis: And incentive comp perspective, it's about 25% said $25 million for incentive comp year over year.

Guillermo Novo: So the issue that we have now is 30 days of visibility. We don't have this order book like the last two years. We've had 30, 90 days of orders. So it was much easier to see what was happening with our customers. Now we have to really count on our models, our forecasting models. Clearly, what's happened, our models statistically aren't as robust because just the last few years, the last two years, especially last year, we're down. So we're really trying to read into that normalization.

Kevin Willis: And about $15 million would be the merit increase impact year over year. So those two things would be roughly $40 million higher this year than last year.

Michael Joseph Harrison: I would expect the corporate side of the equation to return to calling it more normalized. Normalized Levels Q2 through Q4, timeframe, the year over year difference between merit and incentive comp, 20. It's about 25, for instance, 25 million for incentive comp year over year, and about $15 million would be the merit increase impact year over year. So those two things would be roughly $40 million higher this year than last year at Target. And so you won't see all of that.

Kevin Willis: At target.

Kevin Willis: So.

Kevin Willis: You won't see all of that I'm, sorry, a big chunk of that goes goes through Cogs, because it's related to plants in terms of both the annual incentive.

Kevin Willis: The merit increase most of our employees are actually in the plants.

Kevin Willis: It'll it'll it'll flow through various places in the P&L, but that's the number.

Kevin Willis: Okay.

Perfect. Thanks very much.

Kevin Willis: Sure.

Speaker Change: Next question.

Our next question comes from Cristina <unk> with Jpmorgan. Your line is open.

Guillermo Novo: The key points that we look at, in terms of our demand outlook, one is that most of the customers are saying that the de-stocking is behind. There's obviously maybe specific customers can have a little bit, but in general, the de-stocking is a bit behind us. Two, that we have three, three months now of visibility that is improving sequentially and will continue to gain strength. And three is just what our customers, if you look at our customers' earnings calls right now and their outlooks, their projections of volumes being flat for at least the markets that we serve being flattish. So if they remain flat, you know, last year, they were flattish, and we were down. This year, there's, they're going to be flattish, and we should be getting back to this connection with their own demand.

Speaker Change: Hi, This is Jeff zekauskas.

Cristina: Can you hear me okay, yes.

John Kevin Willis: I'm sorry, a big chunk of that goes through COGS because it's related to plants in terms of both the annual incentive and the merit increase. Most of our employees are actually, So it'll, it'll, it'll flow through various places in the P&L, but that's enough. Perfect. Thanks very much, moment.

Jeff Zekauskas: So we can hear you John.

Jeff Zekauskas: Okay. Good thank you.

Jeff Zekauskas: The intermediates and solvents business getting better or worse.

Jeff Zekauskas: If you have visibility on that.

Jeff Zekauskas: No.

Speaker Change: It's been Stabler I mean, most of the volume drops had happened in last year.

Christina Lowe: Next question. Our next question comes from Christina Lowe with JP Morgan. Your line is open. Hi, this is Jeff Zekauskas. Yes. Yes, we can hear you, John. Is the intermediate consultant business getting better? If you have this ability.

So even if you.

Speaker Change: Obviously, a big impact quarter to quarter on a year on year and quarter on quarter in Alaska.

Versus 'twenty three.

Speaker Change: But still is performing better than it did historically, so I think the two things we need to look at it as performing better historically, because we have refocused. It we're focused on different regions, where we have competitive advantage.

Jeffrey John Zekauskas: No, it's been stabler. I mean, most of the volume drops have happened in the last year. So even if you, you know, obviously have a big impact quarter quarter on year on year and quarter on quarter in the last versus 23, but still, it's performing better than it did historically. So I think the two things we need to look at are, it's performed better historically because we have refocused it, we're focused on different regions where we have a competitive advantage. You know, most of the stuff now is going into, you know, EV batteries, semiconductors, no coatings, high quality segments, US, Europe; we obviously do sell a little bit in Europe and on the electronic side. And that's that slowdown for us because of just the competitive intensity. So if you look at the slowdown, there are two sides to it. There are our markets, and then there's the BDO dynamic.

Speaker Change: Most of the stuff now is going into <unk>.

Speaker Change: The battery semiconductors.

Speaker Change: Coatings high quality segments U S. Europe, we obviously do sell still a little bit in Europe in the electronics side and.

Speaker Change: And thats that slowed down for us because of just the competitive intensity. So if you look at the slowdown there's two sides to it.

Guillermo Novo: And that's sort of the model that we're using at this point in time. So is there a number versus 31 million in Q1? We haven't put the quarter on quarter, you know, it'll be, I mean, last year.

Speaker Change: Our markets and then Theres the BDO dynamic video, we don't we're not a big player there.

Speaker Change: But BDO prices have come down a lot more because of the commodity markets and polyurethane fibers. All of these other markets. So there is an excess especially in Europe raw material BDO prices come down so a lot of the MMP in Belo producers have a lower cost base right now so there's a lot more aggressive.

Guillermo Novo: Kevin and you can comment that we had a stronger top line, sales, and production in Q1 and Q2. So, you know, the situation will flip more in the back end of the year where we took the actions last year, but Kevin, you might want to add more color. Yeah, sure.

Guillermo Novo: BDO, we don't, we're not a big player there. But BDO prices have come down a lot more because of the commodity markets and all urethane fibers, all these other markets. So there's an excess, especially in Europe, of raw materials; BDO prices have come down. So a lot of the NMP and BLO producers have a lower cost base right now. So there's a lot more aggressive positioning for loading volumes and things of that nature coming from Asia.

Speaker Change: Positioning for loading volumes.

Speaker Change: And things of that nature coming from from from Asia.

Kevin Willis: So Dave, based on the outlook that we have for Q2 and the full year, our inventory is pretty well positioned right now. We wouldn't see any need to take significant inventory control actions throughout the balance of the year. So that's the first.

The issue is we've seen it mostly on volume, we're seeing some pricing, but we're still being able to maintain a better our position I think the issue now is as volume start recovering not just in our markets.

Speaker Change: The semiconductor space is picking up again in the regions that we're focusing on will be good but really is.

Guillermo Novo: The issue is we've seen it mostly on volume; we're seeing some pricing, but we're still being able to maintain a better position. I think the issue now is as volumes start recovering, not just in our markets, the EV, and the semiconductor spaces; picking up again in the regions that we're focusing on will be good. But really, as you know, if the trend we're seeing applies to other companies later on, in terms of some of the more commodities and BDO prices start coming up, that also will change a little bit the dynamics in our spaces. So you got to look at both of those costs, the implications of BDO, and the demand within our own markets as big drivers, because it's more of a commodity. It's not as differentiated as other parts of our portfolio. Your unallocated costs were 16 million in the quarter.

Kevin Willis: I think the second part, for Q2 versus last year, we started slowing down, I would say, our production later in the quarter in Q2 in some of our facilities. So, year over year, the guide would imply that we're kind of flattish on the absorption piece of the equation this Q2 versus last Q2. There could be a little bit of play in that, but generally pretty flattish.

Speaker Change: The trend we're seeing applies to other companies later on in terms of some of the more commodities in BDO prices start coming up that will also will change a little bit of that dynamics.

Speaker Change: Our spaces. So you've got to look at both of those those that cost implication of BDO and and the demand within our own markets as big drivers because it's more of a <unk>.

Speaker Change: Commodity it's not as a differentiator as other parts of our portfolio.

Kevin Willis: Thank you very much. One moment for our next question. Our next question comes from Josh Spector with UBS. Your line is open. Yeah, hi, good morning.

Speaker Change: Your unallocated costs were $16 million in the quarter is that the normal run rate for you now.

Speaker Change: And is there any meaningful share issuance I know you bought back $100 million worth of stock.

Josh Spector: I actually want to kind of follow up on a similar point there. So rather than year on year, maybe if we talked sequentially, second quarter into the third quarter or second half. You expect EBITDA to step up another, say, $25 million or so per quarter. Is that predicated on your production matching your demand, or are you making the point that in the second half, you might produce more than demand to try to rebuild inventory? So I'm wondering what needs to happen in your base case for that step up into the second half. We are not forecasting building inventory.

Speaker Change: Are you issuing any shares too.

John Kevin Willis: Is that the normal run rate for you now? And is there any meaningful share issuance? I know you put back a hundred million dollars worth of stock. Are you issuing any shares to? Different plans. Yeah, so the unallocated.

<unk> plans.

Speaker Change: So the.

Speaker Change: I'll start with.

Speaker Change: The unallocated unallocated in Q1 was light primarily because of equity based comp.

John Kevin Willis: Unallocated in Q1 was light, primarily because of equity-based comp. I would say the more normalized level that we'd expect to see and what we would have in our outlook is more like around $20 million a quarter for the balance of the fiscal year. In terms of the share repurchase, there's been no meaningful change in what we do there in terms of when we buy those shares, we retire them, and so, there's no other use that we're applying those two so, Right now, as we stand today, the total share count is around 50 million, based on, you know, just based on the repurchase of those shares. The weighted average for the quarter is higher than that.

Speaker Change: I would say the more the more normalized level that we'd expect to see and what we would have in our outlook is more like around $20 million a quarter.

Speaker Change: For the balance of the fiscal year.

Speaker Change: In terms in terms of the of the share repurchase.

Guillermo Novo: So usually, we build inventory now, and then we produce to demand because we're maxed out at the back end of the year. So we're still forecasting to demand. If you look at our outlook, the low end is gonna be driven more by sales slowing down. The move to the higher end is much more of a mix of both higher volume sales and, you know, we would start increased production. So the production impacts would be more of an upside driver as we go into the year. And the other thing that I would say is also because of production, you know, which segments recover are important because, you know, the upside on the manufacturing has a big impact and things like our specialty additives, as an example, so if that recovers, that will also strengthen, you know, the mix impact. Kevin, do you have any other comments on that?

Speaker Change: There has been no meaningful change in what we do there in terms of.

Speaker Change: When we bought those shares we retire them.

Speaker Change: And so.

Speaker Change: There is there is no other use that where we're applying those to so.

Speaker Change:

Speaker Change: Right now as we stand today total share count is around $50 million.

Speaker Change: Based on the.

Speaker Change: Based on the repurchase of those shares.

Speaker Change: Average for the quarter is higher than that.

John Kevin Willis: So we repurchase during the quarter, but we'll do a couple hundred thousand shares a year for comp-based things, but that's, nothing's changed. And then lastly, I may have been muddled over your earlier discussion, your revenue forecast for the March quarter. 565 to 500. University of Colorado Boulder.

Speaker Change: We repurchased during the quarter, but.

Speaker Change: We will do a couple of hundred thousand shares a year for comp based.

Speaker Change: Comp basis things, but thats nothing has changed with that.

Speaker Change: And then lastly, I may have been muddled over your earlier discussion.

Speaker Change: Sure.

Speaker Change: Your revenue forecast for the <unk>.

Kevin Willis: Yeah, yeah, I'll go ahead and add a couple things. Josh, if you look at our Q1 actuals, the implied Q2 based on the guide, and then think about the midpoint of the full-year guide, what that would imply is that Q3 and Q4 would be approximately equal to Q2 of last year from an EBITDA perspective. We don't plan to build inventory.

Speaker Change: Quarter is $5 65 to $5 80.

Speaker Change: And your revenues.

Jeffrey John Zekauskas: 2023 In the March quarter, we're six. And you talked about the orders being much stronger than you expected, though I don't know what your expectations actually were.

Speaker Change: 2023 in the March quarter were 603.

Speaker Change: And you talked about orders being much stronger than you expected.

Speaker Change: The I don't know what your expectations actually work.

Guillermo Novo: So the, and you talked about how important, So in that 565 to 585, we're expecting volumes to be generally lower year over year in the March quarter. Is that right?

Speaker Change: The.

Speaker Change: And you talked about how important March was.

Kevin Willis: We don't see a need to build inventory. We're going to continue to produce on demand. I think that the important point here is that as demand ramps, and we expect it to continue to do so based on, the guide that we're giving, the outlook we're giving, that would imply that we'll need to produce more. And there's good leverage, just like you saw negative leverage last year as we took significant inventory actions, particularly in Q4. There's a lot of positive momentum that comes out of that as well. And then, as you go forward, that just balances itself out into a more normal flow. But we would expect much better absorption in the second half of the year, for sure, than we saw last year in the second half, and also, frankly, much better than what we expect in the first half of the year. Thanks. I appreciate that.

Speaker Change: So in that.

Speaker Change: <unk> 65 to $5 85, we're expecting bulk Oems to be generally lower year over year in.

John Kevin Willis: And that's the current pattern for the first two months to or March is really, I would say we do expect volumes to be a little bit, a little bit lower in this March quarter versus last year's March quarter. And again, that's based on the best look that we have, you know, March could change that. I mean, I think we're looking probably at low single digits year over year from a comparison perspective on volume. The other dynamic that's coming into play is the price mix piece. As we said in our comments there, you know, there is some interplay there around price, raw materials, and volumes. And so we're, you know, trying to make sure that we strike the appropriate balance as we, you know, as we do compete for some volume in the marketplace as well as demand. & Co. So it's really going to be a combination of all those things.

Speaker Change: March quarter is that right.

Speaker Change: And that's the current pattern for the first two months to four of March is really different.

Speaker Change: I would say, we do expect volumes to be a little bit a little bit lower in this march quarter versus last last March quarter.

Speaker Change: And again, that's based on the best look that we have.

Speaker Change: March March could change that I mean, I think we're looking probably low single digits year over year from a comparison perspective on volumes.

Speaker Change: The other dynamic that's coming into play is the price mix piece as we as we said in our comments there. There is some interplay there around price raw materials and volumes and so we're we're trying to make sure that we strike the appropriate balance as we.

Josh Spector: And just thinking about the range of outcomes from a sales perspective of what that means. So you made some interesting comments about demand reconnection, and you know, your customers' demands are flat over a couple years, you're maybe running ratings down 10 to 15% volumes. I guess if you go through the bridge of where things could be, you talked about maybe one to 2% lower volumes because of your exits from certain businesses. Is there anything else that limits that reconnection?

Speaker Change: As we do compete for some volume in the in the marketplaces as demand.

Speaker Change: <unk> has more normalized right now so it's really going to be a combination of all of those factors.

Jeffrey John Zekauskas: What was the volume comparison in January? Well, we haven't we haven't closed yet. So we're gonna we don't know yet. It's still the order book. I mean, look, it was significantly stronger and normalizing a little bit more.

Speaker Change: What was the volume comparison in January.

Guillermo Novo: So customers holding less inventory, any share shifts, or what's the potential volume regain? You could see if you actually see further sequential improvements, either this year or just longer term. So, let me comment and, Kevin, you can add some color.

Speaker Change: Well, we haven't we haven't closed.

Speaker Change: So we've got a team that's going to say.

Speaker Change: We don't know yet.

Speaker Change: It's still it's still the order.

Speaker Change: The order book I mean look it was significantly stronger than normalizing a little bit more I think we need to.

Guillermo Novo: But if you look at the volume drivers for us in terms of share and reconnect, so our first step is just reconnecting to our customers. We have a lot of contracts with customers, so it's really about them not being stalked and now that our alignment goes with their volumes. And I think this is where we don't have perfect clarity and, you know, the models that we have are showing improvement, but, you know, we're not showing that we're necessarily going to reach where their flat volumes are, but we are showing significant improvement. So we're closing the gap between them and us.

Guillermo Novo: I think we need to, Unknown Speaker, get back to you with some comments on February. Remember, last year, we were also looking at China and all the things that were happening. So we're trying to look at, you know, some of those comparisons quarter on quarter. I think what we're seeing right now is the sequential, the momentum of improvement. I think the biggest challenge right now is to forecast inflections. You know, when things are good, and they turn down, it's very difficult to forecast.

Speaker Change: No.

Speaker Change: Look get back to you with some comments on with February remember last year. We're also looking at China and all the things that were happening. So we're trying to look at.

Speaker Change: Some of those those comparison on a quarter quarter on quarter I think what we're seeing right now is the sequential the momentum of improvement, but I think the biggest challenge right now is to forecast inflections when things are good and they turn down it's very difficult to forecast and now when things were down.

Guillermo Novo: And now, when things were down, you know, if we're starting to really see an inflection of changing, I think that's a really bigger focus for us right now. As Kevin said, there's still things that we can't really be perfect about in terms of not just the year on year but production volumes and other things on how good this can get, and we're just going to be prudent as we move forward in some of our numbers and projections, just given the history. And that now we really don't have, as I said at the beginning, we don't have visibility into the orders anymore, and our models, our statistical models don't capture recovery, right? So I think we're going to be looking at recovery more based on recent demand.

Guillermo Novo: So there could be some upside there if things pick up a little bit more. But other than that, I think we really now get into share gains, innovation growth, what's going to drive those volume activities. And that's really where we're focusing on our core businesses. HEC, Aquaflow, Menacell, Clusell, PVP, those kinds of products.

Speaker Change: If we are starting to really see an inflection of changing I think thats, the really bigger focus for US right now as Kevin said, there are still things that we can't really.

Speaker Change: Be perfect about in terms of not just the year on year, but production volumes and other things on how how good can this get and we're just going to be prudent as we move forward in some of our our numbers and projections just given the history.

Guillermo Novo: And I think that if they grow, there will be higher margins for us. And where we're taking the sales reductions are more in businesses that don't generate a lot. So, you know, we're taking off the absorption noise of those low-end businesses.

Speaker Change: And then now we really don't have as I said at the beginning we.

Speaker Change: We don't have visibility to the orders anymore and our models are statistical models don't capture recovery right. So I think we're going to be looking at recovering more based on the.

Guillermo Novo: So the mix, I think, as we look forward is not just whether we are hitting volume growth, but whether we are hitting them in the higher value segments, or are we hitting them in the segments that have the more absorption upside in terms of that recovery impact? And that would be mostly in our cellulosics and specialty items, as well as our, you know, our intermediate. And say that okay, that's very, very fair.

Speaker Change: The more recent demand if we look at 12 month, moving average demand versus two month moving average demand our two month moving average demand is increasing significantly.

Guillermo Novo: If we look at 12 month moving average demand versus two month moving average demand, our two month moving average demand is increasing significantly and strengthening. And now we have three data points, so I think we feel a little bit more comfortable. Okay, great. Thank you. Good question. Our next question comes from Lawrence Alexander with Jeffrey's. Your line is open. Good morning.

Speaker Change: Strengthening and now we have three data points. So I think now we feel a little bit more comfortable on that side.

Speaker Change: Okay, great. Thank you so much.

Speaker Change: Thanks, guys.

Speaker Change: Good question.

Speaker Change: Yes.

Speaker Change: Our next question comes from Laurence Alexander with Jefferies. Your line is open.

Kevin Willis: And let me just add in terms of the outlook. We do not anticipate any major share shift pro or con. There's always some of that that happens.

Laurence Alexander: Good morning.

Laurence Alexander: What's the price versus cost differential so far? And how do you think, you know, when you think about the range that you're giving for the year? What are you assuming? So far, so far, it's pretty balanced.

What's the price versus cost differential so far and how do you think when you think about the range that you're giving for the year what are you assuming.

Kevin Willis: But we don't anticipate big share gains or anything like that in terms of supporting the outlook. So this is just kind of normal operations that we expect to see a nice pickup in the second half in terms of what we're projecting versus what we see from our customers. The outlook would presume that we close that gap. I would say at the upper end of the outlook, it's a more complete closure, at the lower end, it's less, and in the middle, I think, is frankly just where we're comfortable with based upon how we see the future, the order pattern flowing, how we see demand flowing through as well, et cetera. So, you know, said another way, there's nothing extreme in those numbers. There's nothing heroic that has to happen.

Laurence Alexander: Okay.

Laurence Alexander: So far so far it's pretty balanced.

Laurence Alexander: I would say.

Guillermo Novo: I would say, and we're continuing to try and maintain that throughout the year, and that's our view, basically. We think that probably specialty additives are going to have more. Price.

Laurence Alexander: We're continuing continuing with to make to try and maintain that throughout the year.

Laurence Alexander: And that's our view basically.

Laurence Alexander: We think that probably.

Laurence Alexander: Specialty additives is going to likely have have more.

Guillermo Novo: Price Raw is dynamic to it just because there's a lot more volume there than on and On-Site Life Sciences and Personal Care. But that's what we would expect for the balance. I think in the intermediates, obviously, it's been more price, the raw materials, we have seen some benefits in natural gas and all that and our costs. But as I said before, the market price of BDO is obviously impacting our competitors and all that. I think pricing has been a bigger impact for us in intermediates. I think on the other side, traditionally, if you look at the high inflation times, we increased prices, we didn't increase margins based on pricing, and we were able to recover the raw materials.

Laurence Alexander: Price.

Laurence Alexander: Price raws dynamic to it just because there's a lot more volume there than than on.

Laurence Alexander: Then onsite lock sciences and personal care.

Laurence Alexander: But.

Laurence Alexander: What we would that's what we expect for the balance of the year.

I think and intermediates, obviously its been more price raw materials, we have seen some benefits.

Michael J. Harrison: There's also no presumption that anything particularly negative is going to occur. We're using the facts as we currently have them. Okay, thank you. One moment for our next question, please. Our next question comes from Mike Harrison with Seaport Research Partners. Your line is open. Hi, good morning.

Laurence Alexander: Natural gas and all of that in our cost, but I've said before the the market price of BDO, obviously impacting our competitors and all of that I think pricing has been a bigger impact for us.

Laurence Alexander: Intermediates I think on the other sides traditionally if you look at the high inflation time.

Guillermo Novo: Hey, Mike, um, you mentioned this consolidation that's going on with your CMC production at Alizé in France and closing some CMC capacity in Hopewell. Can you give a little bit more detail on the timing of those actions? And then, is the benefit there just that you have better operating rates in Alizé, or is there some near-term plan to repurchase or repurpose those assets in Hopewell? I think there are several benefits that we're going to get. One is that we will be reducing our exposure to a low margin business that has a high capital intensity and high absorption intensity. So it creates a lot of volatility with very little upside. And as we said on other calls, 2022 was really one of the best years we've had.

Laurence Alexander: We increased prices, we did they increase margins based on pricing, we were able to recover the raw materials. So I think as long as we can maintain that that balance I think will be will be okay and thats. What the businesses are trying to make sure that we do.

Guillermo Novo: So I think as long as we can maintain that balance, I think we'll be okay. And that's what businesses are trying to make sure that we, Can you flesh out a little bit just how much when you think about the growth capex that has been delayed? Um, if demand does recover, what, you know, how quickly we should expect CapEx to follow.

Laurence Alexander: And can you flesh out a little bit just how much when you think about the growth capex that has been delayed.

Laurence Alexander: If demand does recover what how quickly we should expect capex to follow.

Guillermo Novo: I think we're looking at the portfolio actions, you know, the HEC. I mean, as we take action on CMC and MC, the bigger volume now is going to be the HEC side. Some of these network adjustments we're doing, we should be in a very good position to be able to grow and support the growth of the business, implementing different actions as demand picks up. For other areas that we put more of the slowdown in CapEx, Aquaflow was one that we have, you know, a lot of that goes into the DIY market that continues to be slower. So we're still pacing ourselves there. Menastel is done.

Laurence Alexander: I think we're looking at the portfolio actions.

Laurence Alexander: The Hec.

Laurence Alexander: We take action on.

Guillermo Novo: And we still had returns on those businesses that were below our cost of capital, so they're not sustainable long-term. So we remove some of that noise. The second thing is that, as you said, we load Alize.

Laurence Alexander: CMC and NMC the big the bigger volume now is going to be the Hec side some of these.

Laurence Alexander: Network adjusted we're doing we should be in a very good position to be able to grow to grow and support the.

Guillermo Novo: We can improve our mix. We can take some actions that that asset, and the returns that we get will be much better. And those will be parts of the business that we can actually invest in and grow for the future. So it stabilizes the core parts of CMC that we like, that we want to grow and maintain. And then the last thing is, yes, we are looking at how we can repurpose. We didn't include in the depreciation numbers, the depreciation numbers that Kevin mentioned, that's not all the assets. We are planning to see how we can repurpose it. There are other, some of the advanced new cellulosic technologies. We need a plant to make those.

Laurence Alexander: The growth of the business. So we would start implementing.

Laurence Alexander: Implementing different actions.

Laurence Alexander: As demand picks up for other areas that we where we put more of the slowdown in Capex Aqua flow was won.

Laurence Alexander: That we have a lot of that goes into the DIY market that continues to be slower. So we're pacing still ourselves there <unk> done the Hec expansion is done.

Guillermo Novo: The HEC expansion is done. So a lot of the big asset projects are basically done, except for the Aquaflow. Most of the other activities are to support our higher margin, they're more asset life type investments. Those are moving ahead per plan. We just, as I said, finished our biofunctional plant in China. We're converting our plant in Brazil from nutraceuticals to oral solid dose coatings and biofunctionals in Brazil.

Laurence Alexander: So a lot of the big asset.

Laurence Alexander: Projects are basically done except for the Acrophobe most of the other activities are to support our higher margin. They are more asset light type investments those are moving ahead.

Guillermo Novo: We could make it in parts of that plant. We could restructure the CMC plant to make other cellulosic products. And we're looking at how we can better manage our mix. Those are all activities that we're looking at at this point in time. So all three of those areas would be part of the improvements. And what we'll see is improved margins, improved return on capital, and you know, and really our ability to use the capital we have to focus on better, higher quality. So we'll allocate that capital better than to sustain these older businesses that really aren't, haven't improved, and they're not gonna improve so significantly in the future.

Laurence Alexander: We just as I said finish our by our functional plant.

Laurence Alexander: In China, we're converting our plant in Brazil from Nutraceuticals too.

Laurence Alexander: The oral solid dose.

Laurence Alexander: Coatings and buy a function also in Brazil and we.

Guillermo Novo: And we're in the process of buying land in India. We should be closing soon and expanding production capabilities there again for some more of these more specialized, lower asset-intensive type businesses. So all of those are going to be growing. And the other plant that we just finished was our injectables plant in Ireland. That's also in the final stages.

Laurence Alexander: We're in the process of buying land in India.

Laurence Alexander: We should be closing soon and expanding production capabilities. There again for some more of these more specialized.

Laurence Alexander: Lower.

Laurence Alexander: Asset intensive type type businesses. So all of those are going to be growing and the other plant that we just finished was our injectables plant in Ireland.

Laurence Alexander: That's also in final stages so.

Michael J. Harrison: And Mike, we would expect to close that CMC unit down by the end of this quarter. The inventory that fell through will, you know, will take longer as we work with our customers on, on, you know, closing that part out. And we also have processes underway to transfer materials into Alizé and ramp that up, which is a process in and of itself. And as Guillermo indicated, over time, we'll figure out what makes sense in terms of the current CMC assets. I mean, suffice it to say, we won't be making CMC in those units; potentially, that can be repurposed down the road for something else. And we're, you know, we have a work stream focused on that. All right, thanks for that.

Guillermo Novo: So, you know, everything else other than Aquaflow, we're pretty much moving. And then, just lastly, on that, ask your free cash flow question because that's where I was headed. Well, I was going to take a slightly different tangent in terms of the restructuring outlays in 2024 versus 2025. But so, however you want to tackle it,

Laurence Alexander: Everything else other than accurate flow.

Laurence Alexander: We're pretty much moving on.

Laurence Alexander: And then just lastly, Lawrence just one.

Lawrence: Ask your free cash flow question, because that's where I was headed.

Lawrence: Well I was going to be taken into slightly different tangent in terms of the restructuring outlays in 2024 versus 2025.

Lawrence: So however, you want to tackle it.

John Kevin Willis: For fiscal 24, the current outlook would anticipate free cash flow conversion, call it in the 50 to 60% range. So, just in support of what Guillermo just said around the hour. [inaudible] shouldn't be outsized necessarily compared to what we would have otherwise. We still expect strong free cash flow. Thank you, moment for our next question. Our next question comes from John McNulty with BMO. Your line is open. Yeah, good morning.

Lawrence: For fiscal 'twenty four.

Lawrence: Our current outlook would anticipate free cash flow conversion.

Lawrence: All of it in the 50% to 60% range.

Lawrence: Adjusted EBITDA.

Lawrence: So just in support of what Guillermo just set around our our capex.

Lawrence: Shouldn't be shouldn't be outsized necessarily when compared to.

Lawrence: What what we would've otherwise expected, we still expect strong free cash flow conversion this year.

Speaker Change: Thank you.

Speaker Change: Mhm.

Kevin Willis: And then, Kevin, you mentioned the lower variable comp and lower equity-based comp that you saw year on year in Q1. When does that variable comp maybe flip to being a headwind year on year? And I guess for the full year, how much higher should we expect variable comp and merit or cost of living increases to be for the full year? Yeah, merit is already flowing through we change merit. We changed it on May 1st of the year, so we're going to call it January is when that..., that's flowing through. All that's anticipated and contemplated in the outlook. In terms of Q1, Most of that is equity-based comp, a very, very small portion of that is. It's more the equity piece.

Speaker Change: Our next question.

Speaker Change: Our next question comes from John Mcnulty with BMO. Your line is open.

John Roberts: Yes. Good morning, Thanks for taking my question, So John sure if I understand it right you are.

John Ezekiel Roberts: Thanks for taking my question. So, if I understand it, you're not building up inventory kind of ahead of the busier season. But it also sounds like you're not really planning on de-stocking any further. So, are you pretty? Are you moving?

John Roberts: Youre not building up inventory kind of ahead of the busier season, so but it also sounds like youre not really planning on Destocking. Any further so are you are you moving.

Guillermo Novo: pretty much to a just-in-time type operation going forward? Or is there inventory that you have, and it's not really a fixed-cost absorption anymore, but you have enough safety stock to kind of handle that seasonal updraft? I guess, how should we be thinking about that?

John Roberts: Pretty much to adjust in time type operation going forward or is there inventory that you have and it's not really a fixed cost absorption anymore, but you have enough safety stock to kind of handle that that seasonal updraft I guess, how should we be thinking about that so.

Guillermo Novo: So, we carry inventory; we don't just carry, we don't carry excess inventory. So we're looking now at, you know, more of the near-term demand, our safety stocks, you know, we look at safety stocks that we want to hold in different parts of the world, the transportation time, all those things factor into what would be our target inventories to support our ongoing business. And that's where we're going.

So the inventory we carry inventory, we don't we don't carry excess inventory.

John Roberts: So we're looking now at more of a near term demand.

John Roberts: Our safety stocks look at safety stocks that we want to hold in different parts of the world.

Kevin Willis: I would expect the corporate side of the equation to return to, call it more normalized, normalized levels, Q2 through Q4, time frame, the year-over-year difference from a merit and incentive comp perspective. It's about $25 million for incentive comp year over year, and about $15 million would be the merit increase impact year over year. So those two things would be roughly $40 million higher this year than last year at Target. And so you won't see all of that.

John Roberts: The transportation time, all those things factor into what would be our target.

John Roberts: Inventories to support our ongoing business and Thats where were going.

Guillermo Novo: What we didn't do is really look like in the past; we would just have looked at a much longer outlook and said, we'll start producing for six months out because we just want to build up the inventory to meet long-term demand. However, given that outlook is still muted versus historic, we are not building that inventory at this point in time. So we're really looking at more near-term inventory. And as orders increase, then we will take appropriate action. That's why, you know, to the comments we said before, if at the back end of the year, what moves us towards the upper side of our guidance range, it's not just higher sales; it's do we have confidence that the higher sales, higher demand is moving, that we would run our, you know, our plants a little bit more aggressively. Right now, we're being much more cautious. I think what you can hear today is that we're more optimistic about sales, the inflection point. But we are not, as we're not taking equal actions on the operating side of the equation from a manufacturing perspective. That's where we're probably being more conservative at this point. I got it.

John Roberts: But what we didn't do is really look like.

John Roberts: In the past, we would just have looked at much longer outlook and say, we'll start producing for six months out per because we just want to build up the inventory to meet long term demand given.

Kevin Willis: I'm sorry, a big chunk of that goes through COGS because it's related to plants in terms of both the annual incentive and the merit increase. Most of our employees are actually, So it'll, it'll, it'll flow through various places in the P&L, but that's enough. Perfect.

John Roberts: That outlook is still muted versus historic we are not building inventory at this point in time. So we're really looking at more nearer term inventories and as orders increase.

Jeffrey J. Zekauskas: Thanks very much, moment for the next question. Our next question comes from Christina Lowe with JP Morgan. Your line is open. Hi, this is Jeff Zekauskas. Yes, we can hear you, John. Is the intermediate consultant business getting better? if you have this ability.

John Roberts: And then we will take appropriate action, that's why to the comments, we said before even the back end of the year.

John Roberts: What moves us towards the upper side of our guidance range. It's not just higher sales is do we have confidence that the higher sales.

Guillermo Novo: No, it's been more stable. I mean, most of the volume drops happened in the last year. So even if you, you know, obviously have a big impact quarter on year on year and quarter on quarter in the last versus 23, but still, it's performing better than it did historically. So I think the two things we need to look at are, it's performed better historically because we have refocused it, we're focused on different regions where we have a competitive advantage. You know, most of the stuff now is going into, you know, EV batteries, semiconductors, coatings, high quality segments, US, Europe; we obviously do sell a little bit in Europe and on the electronic side. And that's the slowdown for us because of just the competitive intensity. So if you look at the slowdown, there are two sides to it. There's our markets, and then there's the BDO dynamic. BDO, we don't; we're not a big player there.

John Roberts: Higher demand is moving that we would run our.

John Roberts: Sure.

John Roberts: Our plants, a little bit more aggressively right now we are being much more cautious I think what you can hear today is we're more optimistic on the sales the inflection point, but.

John Roberts: But we are not.

John Roberts: We're not taking this equal actions and our operating side of the equation.

From a manufacturing perspective, thats, where were probably being more conservative at this point in time.

Guillermo Novo: Okay, no, that helps. And then, from a capital allocation perspective, so, you know, over the last, I guess, four quarters or so, you've bought back about $100 million worth of stock, not really anything on the M&A front. And, you know, for probably various reasons, the markets were kind of closed down for a while. I guess, can you speak to how you're looking at 2024? And if you see that pipeline opening up a bit where there may be opportunities, and then also, do you feel like you have the bandwidth to go after those types of opportunities, given all the self-help work that you're doing yourself? So, can you help us to think about that? So, in M&A, we haven't stopped. We've been active even this year. I mean, if the right deal comes along, we are capable of doing it.

Speaker Change: Got it okay.

Speaker Change: That helps and then.

Speaker Change: From a capital allocation perspective, so over the last I guess four quarters or so you bought back about $100 million worth of stock.

Speaker Change: Not really anything on the M&A front and for probably various reasons when the markets were kind of closed down for a while I guess can you speak to how youre looking at 2024, and if you see that pipeline opening up a bit where there may be opportunities and then also do you feel like you have the bandwidth to.

Guillermo Novo: But BDO prices have come down a lot more because of the commodity markets and all urethane fibers, all these other markets. So there's an excess, especially in Europe, of raw material. BDO prices have come down. So a lot of the NMP and BLO producers have a lower cost base right now. So there's a lot more aggressive positioning for loading volumes and things of that nature coming from Asia.

Speaker Change: Go after those types of of opportunities given all of the self help work that youre doing yourself. So can you help us to think about that so in M&A. We haven't stopped we have been active even in this year I mean, if the right deal came we are capable of doing it and most of these are are bolt ons, so theyre not theyre not.

Guillermo Novo: The issue is we've seen it mostly on volume; we're seeing some pricing, but we're still being able to maintain a better position. I think the issue now is that as volumes start recovering, not just in our markets, but the EV, the semiconductor spaces picking up again in the regions that we're focusing on will be good. But really, as you know, if the trend we're seeing applies to other companies later on, in terms of some of the more commodities and BDO prices start coming up, that also will change a little bit of the dynamics in our spaces. So you got to look at both of those, that cost implication of BDO and the demand within our own markets as big drivers, because it's more of a commodity. It's not as differentiated as other parts of our portfolio. Your unallocated costs were $16 million in the quarter.

Speaker Change: There are things that we can do within our financial position and continue to support our organic growth activities.

Speaker Change: The issues that we've been disciplined I mean, even in the downturn some of the properties that would have been in the spaces that we're looking at when I'm very still very valuations that we don't we didnt believe were appropriate.

Speaker Change: For the returns that that.

Guillermo Novo: Most of these are bolt-ons, so they're not; they're things that we can do within our financial position and continue to support our organic growth activities. The issue is that we've been disciplined. I mean, even in the downturn, some of the properties that would have been in the spaces that we're looking at went at very, still very high valuations that we don't, we didn't believe were appropriate for the returns that we would need to generate from those acquisitions. So, we've got biologies in personal care that are more natural, natural derived, biodegradable, and expanding beyond biology and coding sort of are the

Speaker Change: We would need to generate from.

Speaker Change: From those acquisitions. So it's been more we've been active there has been things, but we've just been disciplined and we will continue to be disciplined so as we go into 'twenty. Four there are those there are opportunities we have targets we are working them.

Jeffrey J. Zekauskas: Is that the normal run rate for you now? And is there any meaningful share issuance? I know you put back $100 million worth of stock. Are you issuing any shares to different plans? Yeah, so the unallocated. Unallocated in Q1 was light primarily because of equity-based comps.

Speaker Change: But at the end of the day, we do have a very strong organic growth.

Speaker Change: Potential here. So that's our number one priority we want to do the M&A, but we don't have to do it to drive some of our growth objectives.

Speaker Change: And we're going to be prudent on that if you look at the M&A nothing has really changed on the priorities.

Kevin Willis: I would say the more normalized level that we'd expect to see and what we would have in our outlook is more like around $20 million a quarter for the balance of the fiscal year. In terms of the share repurchase, there's been no meaningful change in what we do there in terms of when we buy those shares, we retire them, and so there's no other use that we're applying those two. Right now, as we stand today, the total share count is around 50 million, uh, based on, you know, just based on the repurchase of those shares, the weighted average for the quarter is higher than that because we repurchase during the quarter. But we'll do a couple hundred thousand shares a year for comp-based and other comp-based things. Nothing's changed. And then lastly, I may have been muddled over your earlier discussion of your revenue forecast for the March quarter. 565 to 500, and Will Evans.

Pharma and Injectables being the number one.

Speaker Change: I already for us.

Technologies in personal care that are more natural natural drive biodegradable and.

Speaker Change: Expanding beyond rheology and coating sort of are the big themes and if you look at our organic growth themes that I cover today. They basically hit those those three schemes. So we got plenty to do but we will augment them, but we will maintain the same prudence that we have done in the last two years.

Guillermo Novo: And if you look at our organic growth themes that I covered today, they basically hit those three themes. So, we've got plenty to do, but we will augment them, but we will stay, maintain the same prudence that we have done in the last two years.

Guillermo Novo: Thanks very much for the caller. One moment for our next question. The next question comes from Michael Sison with Wells Fargo. Your line is open.

Speaker Change: Got it thanks very much for the color.

Speaker Change: Okay.

Speaker Change: One moment for our next question.

Speaker Change: Okay.

Speaker Change: Next question comes from Michael Sison with Wells Fargo. Your line is open.

Michael Joseph Sison: Hey, cheers, nice start to the year. I'm just curious where your network utilization rates are now. And then, you know, if you're able to hit the midpoint of your guidance for the second half of the year, where do you need your users? Sorry, where do your utilization rates need to be? And then do you get another 10 to 15% above that as you head into 25?

Michael Sison: He chairs nice start to the year.

Michael Sison: Just curious where you are.

Michael Sison: What are your network utilization rates are now and then.

Jeffrey J. Zekauskas: Thank you. 2023 In the March quarter, there were six of them, and you talked about the orders being much stronger than you expected. Though I don't know what your expectations actually were.

Michael Sison: If you if you are able to hit the midpoint of your guidance.

Michael Sison: For the second half of the year, we're in a unique use there.

Michael Sison: Alright.

Michael Sison: Our utilization rates need to be and then you get another 10% to 15% above that as you head into 25 because of your portfolio actions.

Guillermo Novo: So the, and you talked about how important, So in that 565 to 585, we're expecting volumes to be generally lower year-over-year in the March quarter, is that right? And that's the current pattern for the first two months too, or March is really... I would say we do expect volumes to be a little bit, a little bit, lower in this March quarter versus last year's March quarter. And again, that's based on the best look that we have.

Guillermo Novo: Because your portfolio actually, So let me get some comments, and Kevin, you might want to comment also based on some of the portfolio actions we're doing, but if you look, obviously, the volumes have been down, headwinds have been, absorption is the biggest issue, so utilization rates have been much lower. But if you look at our actions and the specific product line, CMC, obviously, we're consolidating, so Alizé will be very well stocked as we finish those actions, and that takes away a lot of the noise in the low-end business. Similarly, we're looking at how we optimize our MC businesses, and that's progressing well. HEC With the network optimization opportunities we have, I do think that with that one, we can get much better load.

Michael Sison: Alright.

Speaker Change: So let me get some comments in.

Speaker Change: Kevin you might might want.

Kevin Willis: Comment also based on some of the portfolio actions, we're doing but if you look obviously the volumes have been down headwinds has been absorption is the biggest issue so utilization rates have been much lower but if you look at our actions and the specific product lines. So CMC, obviously, we're consolidating so alistair.

Kevin Willis: We'll be very well loaded as we as we.

Guillermo Novo: March, March could change that. I mean, I think we're probably looking at low single digits year over year from a comparison perspective on volume. The other dynamic that's coming into play is the price mix piece, as we said in our comments, there is some interplay there around price, raw materials, and volumes, and so we're, you know, we're trying to make sure that we strike the appropriate balance as we, you know, as we do compete for some volume in the marketplace as Zekauskas, Michael Harrison, David Begleiter, Jeffrey Zekauskas, Michael Sison, Well, we haven't closed January yet, so we're going to say we don't know yet. It's still in the order. The order book, I mean, look, it was significantly stronger and normalizing a little bit more.

Kevin Willis: Finished those actions.

Kevin Willis: And that.

Kevin Willis: It takes away a lot of the noise.

Kevin Willis: And the loan business. Similarly, we're looking at how we optimize our RMC businesses.

Kevin Willis: And that's progressing well.

Kevin Willis: Hec with a network optimization opportunities we have I do think that that one we can get much better loading I think obviously, we're looking to grow that part of the portfolio. So we want to make sure the volume pickup will be very important and it will normalize more to <unk>.

Guillermo Novo: I think obviously, we're looking to grow that part of the portfolio. So we want to make sure, you know, the volume pickup will be very important. And it will normalize more to below where we're below the 80, you know, below the healthy utilization rates in many of our plants. So there that network optimization, aqua flow is at low utilization rates right now.

Kevin Willis: We're below the 80.

Kevin Willis: Hello.

Kevin Willis: Healthy.

Kevin Willis: Utilization rates in many of our of our plants.

Kevin Willis: So that network optimization Acura flow is at low utilization rates right now.

Guillermo Novo: You know, DIY has not recovered as much, and we have a big position in the US and Europe with those technologies. So that one is one that we are, we've been, we're, moving slower on the capacity and all that because we are underutilized at this point in time. The rest, it's a mix of things.

Kevin Willis: DIY has not recovered as much and we have a big position in the U S and Europe with those technologies.

So that one is one that we are.

Kevin Willis: We were.

Kevin Willis: Moving slower on the capacity and all that because we are under underutilized at this point in time the rest of it's a mix of things is smaller units.

Guillermo Novo: I think we need to, You know, look get back to you with with some comments on with February remember last year we're also looking at China and all the things that were happening so we're trying to look at at you know some of those those comparisons on a quarter quarter on quarter I think what we're seeing right now is the sequential the momentum of improvement I think the the biggest challenge right now is to to forecast inflections you know when things are good and they turn down it's very difficult to forecast and now when things were down you know if we're starting to really see an inflection of changing, I think that's the really bigger focus for us right now. As Kevin said, there's still things that we can't really be perfect about in terms of not just the year-on-year, but production volumes and other things on how good can this get, and we're just going to be prudent as we move forward in some of our numbers and projections, just given the history.

Guillermo Novo: The smaller units, it's not as big of a worry for us. So I would focus on HEC as really the one that as we look into 2025, we really want to make sure that some of these actions really optimize our load but allow us to continue to drive the organic growth for that business, which is we're the market leader in that business. But Kevin, I don't know if you want to have any specific numbers on the portfolio actions, here on the yes, and the 10 to 15% increase in utilization rates is only related to CMC, MC, and HEC. And the way to think about that is that those utilization rates will offset the lost gross profit, not just from CMC and MC, there won't be any lost gross profit from HEC, but will also offset the lost gross profit from

Kevin Willis: It's not as big of a worry.

Kevin Willis: For us I would focus on Hec is really the one that as we look into 2025 that we really want to make sure that some of these actions really optimize our loading but allow us to continue to drive the <unk>.

Kevin Willis: <unk> growth for that business, which is we're the market leader in that business, but Kevin I don't know if you want to have any specific numbers on the portfolio actions.

Kevin Willis: Sure.

Kevin Willis: The 10% to 15% increase.

Kevin Willis: Increase in utilization rates is only related to CMC EMC and the Hec and the way to think about that is those utilization rates will offset the lost gross profit not just from CMC and AMC there won't be any lost gross profit from Hec will also offset the lost gross profit from the <unk>.

John Kevin Willis: That's part of why we get the uplift that we get from an EBITDA margin perspective and also from a return on net assets perspective. Across the rest of the network, it's a little bit mixed in terms of where we are from a utilization perspective, but we're well positioned to be able to ramp up based on the outlook that we have. I'm really not concerned about being able to do that, assuming that demand continues to unfold as it has here early in the fall. So I feel good about that.

Kevin Willis: Nutraceuticals business.

Kevin Willis: Part of why we get the uplift that we get from an EBITDA and EBITDA margin perspective.

Guillermo Novo: And that now we really don't have, as I said at the beginning, we don't have visibility into the orders anymore, and our models, our statistical models don't capture recovery, right? So I think we're going to be looking at recovery more based on the more recent demand. If we look at 12-month moving average demand versus two-month moving average demand, our two-month moving average demand is increasing significantly and strengthening. And now we have three data points, so I think we feel a little bit more comfortable. Okay, great. Thank you. Question?

Kevin Willis: So from a return on net assets perspective.

Kevin Willis: Across the rest of the network, it's it's a little bit mix in terms of where we are from a utilization perspective, but we were well positioned to be able to ramp based on the outlook that we have.

Kevin Willis: And I'm really not concerned about being able to do that assuming that demand continues continues to unfold as it as it has here early in the fiscal year. So feel good about that and as Guillermo said as we as we move into fiscal 'twenty five.

Guillermo Novo: And as Guillermo said, as we as we move into fiscal 25, we're going to be pretty well positioned to take advantage of continued improvement, and to the extent that DIY architectural coatings, business improves. We're well positioned at Alizade because our utilization rates are pretty low right now for aqua flow and we are increasing our capacity there and can and can ramp that project up based on how we see demand unfold. And again, HEC, we're commissioning the new unit at Hopewell. Now, we've been doing that for a while. And as you'll recall.

Kevin Willis: We're going to be pretty well positioned to take advantage of continued improvement and to the extent that the DIY.

Jeffrey J. Zekauskas: Our next question comes from Lawrence Alexander with Jeffrey's Your Line is Open. Good morning. What's the price versus cost differential so far? And how do you think, you know, when you think about the range that you're giving for the year? What are you assuming? So far, so far, it's pretty balanced.

Kevin Willis: Protective coatings.

Kevin Willis: Business improves.

Kevin Willis: Well positioned because our utilization rates are pretty low right now.

Kevin Willis: For for Aqua flow and we are.

Kevin Willis: Increasing our capacity there and can and can ramp that project up based on how we see demand unfolding.

Kevin Willis: I would say, and we're continuing to try and maintain that throughout the year. And that's our view, basically. Yeah, we think that probably specialty additives are gonna likely have a higher price.

Kevin Willis: And again, Hec, where we're commissioning a new the new unit.

Kevin Willis: Hopewell now we've done and we've been doing that for a while.

Kevin Willis: And as you'll recall.

John Kevin Willis: About a year or so ago, we completed the commissioning of our new continuous dryer there, which was a major bottleneck for us in terms of general cellulose capacity. And so that's now off the table, which is also good. But I think, Mike, the other comment I would make on just capacity utilization to reinforce our innovation and growth. For all these new projects, we're basically not making significant capital investments. So our transformed vegetable oils; we have enough capacity in two of our plants that as this ramps up, we have plenty to support growth there.

Kevin Willis: About a year or so ago, we completed the commissioning of our new continuous dry there, which was a major bottleneck for us in terms of general Cellulosic.

Guillermo Novo: Price Raw is dynamic compared to it just because there's a lot more volume there than on Nonsite Life Sciences and Personal Care, but that's what we would expect for the balance. I think in the intermediates, obviously, it's been more price for the raw materials, but we have seen some benefits in natural gas and all that in our costs. But as I said before, the market price of BDO is obviously impacting our competitors and all that, but I think pricing has been a bigger impact for us in intermediates. I think on the other side, traditionally, if you look at the high inflation times, we increased prices. We didn't increase margins based on prices.

Capacity and so that's now off the table, which is which is also good and helpful.

Kevin Willis: Okay.

Speaker Change: I think Mike the other comment I would make on just capacity utilization just to reinforce our innovation and growth.

Speaker Change: For all these new projects were basically not making significant capital investments. So our transform vegetable oils, we have we have capacity already.

Michael J. Harrison: And in two of our plants that is as this ramps up we have plenty to support growth. There are super weathers were making a culvert city and assets that were not utilized before so that will that as that ramps up that will be positive the ph neutralize or we will be making also in Calvert city and another unit that was underutilized.

Guillermo Novo: Our super wetters we're making at Calvert City and assets that were not utilized before, so as that ramps up, that will be positive. The pH neutralizer we will also be making at Calvert City, another unit that was underutilized.

Guillermo Novo: We were able to recover the raw materials. So I think as long as we can maintain that balance, I think we'll be OK. And that's what the businesses are trying to make sure that. Can you flesh out a little bit just how much when you think about the growth capex that has been delayed? If demand does recover, what, you know, how quickly we should expect CAPEX to follow.

Guillermo Novo: We're making, and we're back integrating into some of our preservative raw materials. Also, rather than building a new plant that we were planning to build in Europe, we are leveraging existing assets in Calvert City that we're going to use there. And as I said, with the novel cellulosics, as that progresses, we can repurpose some of the assets that we're addressing now with CMC and maybe utilize and bring them for higher value. So on the capital side, I think that's one of the, you know, it's not just the capital dollars, but the time wise, we can support some of these growth initiatives much faster than you would normally be able to So I think there's a lot of things that this first step of normalization of demand is the critical step for us, and we're not controlling that; that's more the market recovering, market normalizing. And I think we're starting to see that.

Mike Harrison: Lives.

Mike Harrison: We're making we're back integrating into some of our preservative raw materials.

Mike Harrison: Also rather than building a new plant that we were planning to build in Europe, we are leveraging existing assets and in Calvert city that that we're going to use there.

Mike Harrison: And as I said with the novel cellular low six as that progresses.

Mike Harrison: We can repurpose some of the assets that were we're addressing now with CMC.

Kevin Willis: I think we're looking at the portfolio actions, you know, the HEC. I mean, as we take action on CMC and MC, the bigger volume now is going to be the HEC side. Some of these network adjustments we're doing, we should be in a very good position to be able to grow and support the growth of the business. So we would start implementing different actions as demand picks up. For other areas that we where we put more of the slowdown in CapEx, Aquaflow was one that we have, you know, a lot of that goes into the DIY market that continues to be slower. So we're still pacing ourselves there. Menastel is done.

Mike Harrison: And may be utilized in bringing them for more higher value. So so on the on the capital side I think that's one of the.

Mike Harrison: It's not just the capital dock.

Mike Harrison: The timeline time wise, we can support some of these growth initiatives much faster than you would normally be able to support it if you're required builds.

Mike Harrison: Building new plants, so I think theres a lot of things.

First step of normalization of demand as the critical step for us and we're not <unk>.

Mike Harrison: Controlling that thats more of the market recovering market normalizing and I think we're starting to see that the.

Michael Joseph Sison: The rest then is the actions that we take all these, you know, portfolio actions, driving, and sticking to our strategy. You know, I think that's why we're making the point of, once things stabilize, it's what we do that's going to make a difference. It's not just recovery now.

Mike Harrison: The rest then is the actions that we take all of these.

Mike Harrison: Portfolio actions driving sticking to our strategy.

Mike Harrison: I think that's why we're making the point look once things stabilize it's what we do that's going to make the difference. It's not now just recovery. It's the hard work of where we're putting our efforts our resources.

Guillermo Novo: It's the hard work of where we're putting our efforts, our resources, and our capabilities to drive growth. Great. Thanks, guys. Thank you. As a reminder, to ask a question, you will need to press star 11 on your telephone and wait for your name to be announced.

Mike Harrison: <unk> abilities to drive growth.

Great. Thanks, guys.

Mike Harrison: Thanks.

Speaker Change: Thank you as a reminder to ask a question you will need to press star one one on your telephone and wait for your name to be announced.

John Ezekiel Roberts: Our next question comes from John Roberts with Mizzou. Your line is open. Thank you. On the cellulosic restructuring, if you look, gross profit for specialty additives and intermediates was both down 60 percent-ish. The gross margins are actually lower in specialty additives than they are in intermediates.

Speaker Change: Our next question comes from John Roberts with Mizuho. Your line is open.

John Roberts: Thank you on the Cellulosic restructuring.

John Roberts: If you look gross profit for specialty additives and intermediates were both down 60% ish.

John Roberts: Gross margins are actually lower in specialty additives and they arent intermediates any thought to merging those two segments or even just pulling the cellulosic plants out of specialty.

Guillermo Novo: Any thought to merging those two segments or even just pulling the cellulosic plants out of specialty additives, putting them in intermediates, and having them sell to the other segments the same way you sell BDO from the intermediate segment to the other segment? I think it's a little bit more, more, strategic for us to keep it in line with our businesses. I mean, one thing you're seeing in specialty additives is all of the absorption issues of the HEC, as an example, and CMC are captured in specialty additives. So they're the landlord, so they're getting all the hits.

John Roberts: Specialty additives, putting them in intermediates and having them sell to the other segments. The same way you sell BDO from the intermediate segment to the other segments.

John Roberts: I think it's.

Guillermo Novo: So everything else other than Aquaflow, we're pretty much moving on. And then, lastly on that, Lawrence, just one, I'll ask you a free cash flow question because that's where I was headed. But I was going to take a slightly different tangent in terms of the restructuring outlays in 2024 versus 2025. But so however you want to tackle it,

John Roberts: A little bit more more.

John Roberts: Critical strategic for us to keep it in line with our businesses.

John Roberts: One.

John Roberts: The.

John Roberts: What youre seeing in specialty additives is all of the absorption issues of.

John Roberts: The Hec as an example in CMC are captured in <unk>.

John Roberts: Specialty additives, so so the latter or the landlord so they're getting all the hit it's not just I mean, they are the biggest volume in hec, but in CMC, they're not the biggest volume, but it's in their sites. So there is a little bit more of a distortion.

Kevin Willis: For fiscal 24, the current outlook would anticipate free cash flow conversion, call it in the 50 to 60% range, just so just in support of what Guillermo just said around our Kappa, shouldn't be shouldn't be outsized necessarily compared to what we would have otherwise. We still expect strong free cash flow. Thank you.

Guillermo Novo: It's not just, I mean, they're the biggest volume in HEC, but in CMC, they're not the biggest volume, but it's on their site. So there's a little bit more of a distortion that some of the products that are down are in life science and personal care, and we're exiting that. So we'll resolve those issues moving forward. But if you look at HEC with the recovery and all that, I think, you know, that is a core business. You know, this is sort of the model that we have for how we build scale with additives. You know, we have to have one or two applications that give it more scale for manufacturing production, and then we're able to sell them out.

John Roberts: Sure.

John Roberts: Some of the products are that are down are in life science.

And personal care and we're exiting it will resolve those issues moving forward, but if you look at Hec with the recovery and all that I think that is a core business. This is sort of the model that we have on how do we build scale with additives, we have to have one or two applications.

John Roberts: Give it more scale for manufacturing production and then we're able to sell amount it's a law.

John Mcnulty: A moment for our next question. Our next question comes from John McNulty with BMO. Your line is open. Yeah, good morning.

Guillermo Novo: It's a little bit different than the intermediates, where it's just BDO that we're making. It is a true, true commodity. There are many producers, we are a very small producer; it just gives us back integration. We're the largest APC player. So you know, I think there we need to make sure that we're controlling it and driving it per our core business, which is our specialty attitudes. Since you're just back from China, we had an extended Chinese New Year shutdown period last year as the Chinese economy was reopening. What are your thoughts on how this Chinese New Year will play out? So, so, you know, I think not just the new year, but I think in general, things have slowed down in terms of our plant in China, specifically HEC. A lot of it is coatings, and it stays in China; we don't export much. So it's, it's still operating well, but the volumes are down. We are well aligned with some of the big players. And they've done well in the last year because of just their own share and, and, and commercial activities.

John Roberts: Little bit different than.

John Roberts: Then intermediates, where it's just BDO that that we're making it is it is a true true commodity theres. Many producers we are a very small producer. It just gives us back integration, where the largest hec player.

Guillermo Novo: Thanks for taking my question. So, if I understand it right, you're not building up inventory kind of ahead of the busier season, but it also sounds like you're not really planning on de-stocking any further. So are you moving?

John Roberts: So I think there we need to make sure that we're controlling it and driving it per our core business, which is our our specialty additives.

Guillermo Novo: pretty much to a just-in-time type operation going forward, or is there inventory that you have, and it's not really a fixed-cost absorption anymore, but you have enough safety stock to kind of handle that seasonal updraft? I guess, how should we be thinking about that? So, we carry inventory; we don't just carry, we don't carry excess inventory. So we're looking now at, you know, more of the near-term demand, our safety stocks, you know, we look at safety stocks that we want to hold in different parts of the world, the transportation time, all those things factor into what would be our target inventories to support our ongoing business. And that's where we're going.

Since you since you've just back from China, We had a extended I think Chinese new year shutdown period last year as the Chinese economy was reopening.

John Roberts: What are your thoughts on how this Chinese new year plays out.

Speaker Change: So I think not just the new year, but I think in general things.

We have slowed down in terms of.

Speaker Change: Our plant in China, specifically Hec a lot of it is coatings and it stays in China, we don't export much.

So it's still operating well, but the volumes are down we are well aligned with some of the big players and they have done well in the last year because of just their own chair and and commercial activities, but in general the property market in all that we are seeing a general.

John Mcnulty: We, what we didn't do is really look like in the past; we would just have looked at a much longer outlook and said, we'll start producing for six months out because we just want to build up the inventory to meet long-term demand. However, given that the outlook is still muted versus historic, we are not building that inventory at this point in time. So we're really looking at more near-term inventory. And as orders increase, then we will take appropriate action. That's why, you know, to the comments we said before, if at the back end of the year, what moves us towards the upper side of our guidance range, it's not just higher sales; it's do we have confidence that the higher sales and higher demand are moving, that we would run our plants a little bit more aggressively. Right now, we're being much more cautious.

Guillermo Novo: But in general, the property market and all that we are seeing a general slowdown in China, the big question is going to be not so much the Chinese New Year, it's what actions do we see, you know, in support of the real estate and construction market over the coming months. And there are some indications that that is something that is at play at this point in time. But But clearly, for us, you know, China, for 2024 is going to be stable, but it's not going to recover, you know; we're not expecting it to just recover very quickly at this point.

Speaker Change: Slowdown.

Speaker Change: In China. The Big question is going to be not so much the Chinese new year, It's what actions do we see in.

<unk> support of the real estate the construction market over the coming months.

And there is some indication that that's that is something that is at play at this point in time.

Speaker Change: But clearly for us.

Speaker Change: China for 2024.

Speaker Change: It's going to be stable, but it's not going to recover we're not expecting it to just recover very quickly at.

Guillermo Novo: Thank you. Thank you. That concludes the question and answer session. At this time, I would like to turn the call back to Guillermo Novo for closing remarks. Okay. Thank you, Abigail.

Speaker Change: At this point in time.

Speaker Change: Thank you.

Speaker Change: Thank you that concludes the question and answer session. At this time I would like to turn the call back to Guillermo Novo for closing remarks, okay. Thank you Abigail and thank you everyone for your questions and participation and we look forward to engaging all of you on that.

Guillermo Novo: And thank you, everyone, for your questions and participation. And we look forward to engaging all of you in the coming weeks and getting into more discussions. But I hope as, you know, the big takeaways: one, that we are seeing some improvement in the overall market dynamics. Number one, two, that we're focused on our strategy and our actions. And we're going to continue to drive them as we move forward. And we believe there's a great future ahead for a lot of these new technologies and for Ashland. So, thank you very much for your time, and I look forward to talking to you soon. Thank you for your participation in today's conference. This does conclude the program. You may now disconnect.

Guillermo Novo: I think what you can hear today is we're more optimistic about sales, the inflection point. But we are not, as we're not taking equal actions on the operating side of the equation from a manufacturing perspective. That's where we're probably being more conservative at this point. Okay. Okay, no. That helps.

Speaker Change: Weeks.

Speaker Change: And get into more discussions, but I hope us.

Guillermo Novo: The big takeaways, one that we are seeing some some improvement.

Guillermo Novo: The overall market dynamics number one two that we are focused on our strategy and our actions and we're going to continue to drive them as we move forward in that.

John Mcnulty: And then, from a capital allocation perspective, so, you know, over the last, I guess, four quarters or so, you've bought back about $100 million worth of stock, not really anything on the M&A front. And, you know, for probably various reasons, the markets were kind of closed down for a while. I guess, can you speak to how you're looking at 2024? And if you see that pipeline opening up a bit where there may be opportunities, and then also, do you feel like you have the bandwidth to go after those types of opportunities, given all the self-help work that you're doing yourself? So, can you help us to think about that? In M&A, we haven't stopped. We've been active even this year. I mean, if the right deal comes along, we are capable of doing it. Most of these are are bolt-ons.

Guillermo Novo: There's a great future ahead.

Guillermo Novo: And a lot of these new technologies.

Guillermo Novo: For Ashley so thank you very much for your time and look forward to talking soon.

Speaker Change: Thank you for your participation in today's conference. This does conclude the program you may now disconnect.

Speaker Change: Okay.

Speaker Change: [music].

Speaker Change: Okay.

Speaker Change: [music].

Guillermo Novo: So, they're not, they're not, they're things that we can do within our, our, our financial position and continue to support our, our organic growth activities. The issues that we've been disciplined on, I mean, even in the downturn, some of the properties that would have been in the spaces that we're looking at went at very, still very high valuations that we didn't, we didn't believe were appropriate for the returns that that would, we would need to generate from those acquisitions. So, it's been more, we've been active, there have been things, but we've just been disciplined, and we will continue to be disciplined. So, as we go into 24, there are those, there are opportunities, we have targets, and we are working towards them. But at the end of the day, you know, we do have very strong organic growth potential here. So, that's our number one priority. We want to do M&A, but we don't have to do it to drive some of our, our, our, our growth objectives. And, you know, we're going to be prudent on that. If you look at the M&A, nothing's really changed about the priorities.

John Mcnulty: Pharma and injectables being the number one priority for us. Technologies in personal care that are more natural, naturally derived, biodegradable, and expanding beyond biology and coding sort of are the big themes. And if you look at our organic growth themes that I covered today, they basically hit those three themes. So, we have plenty to do, but we will augment them, but we will stay, maintain the same prudence that we have done in the last two years. I got it.

Michael Sison: Thanks very much for the caller. One moment for our next question. The next question comes from Michael Sison with Wells Fargo. Your line is open.

Guillermo Novo: Hey, cheers, nice start to the year. I'm just curious where your network utilization rates are now. And then, you know, if you're able to hit the midpoint of your guidance for the second half of the year, where do you need your user base, sorry, where do your utilization rates need to be? And then do you get another 10 to 15% above that as you head into 25?

Guillermo Novo: Because your portfolio actually, So let me get some comments, and Kevin, you might want to comment also based on some of the portfolio actions we're doing. But if you look, obviously volumes have been down, headwinds have been, absorption is the biggest issue, so utilization rates have been much lower. But if you look at our actions and the specific product line, CMC, obviously, we're consolidating, so Alizé will be very well stocked as we finish those actions. And that takes away a lot of the noise in the low-end business. Similarly, we're looking at how we optimize our MC businesses, and that's progressing well. HEC With the network optimization opportunities we have, I do think that with that one, we can get much better load. I think obviously, we're looking to grow that part of the portfolio. So we want to make sure that, you know, volume pickup will be very important. And it will normalize more to below where we're below the 80, you know, below the healthy utilization rates in many of our plants. So there is that network optimization.

Guillermo Novo: Aquaflow is at low utilization rates right now. You know, DIY has not recovered as much, and we have a big position in the U.S. and Europe with those technologies. So that one is one that we are moving slower on the capacity and all that because we are underutilized at this point in time. The rest, it's a mix of things.

Guillermo Novo: The smaller units, it's not as big of a worry for us. So I would focus on HEC as really the one that as we look into 2025, we really want to make sure that some of these actions really optimize our load but allow us to continue to drive the organic growth for that business, which is we're the market leader in that business. But Kevin, I don't know if you want to have any specific numbers on the portfolio actions, here on the yeah, and the 10 to 15% increase in utilization rates is only related to CMC, MC, and HEC. And the way to think about that is those utilization rates will offset the loss gross profit, not just from CMC and MC, there won't be any loss gross profit from HEC, will also offset the lost gross profit from the nutraceuticals.

Kevin Willis: This is part of why we get the uplift that we get from an EBITDA margin perspective and also from a return on net assets perspective. I think across the rest of the network, it's a little bit mixed in terms of where we are from a utilization perspective, but we are well positioned to be able to ramp up based on the outlook that we have. I'm really not concerned about being able to do that, assuming that demand continues to unfold as it has here early in the fall. So, feel good about that.

Guillermo Novo: And as Guillermo said, as we move into fiscal 25, we're going to be pretty well positioned to take advantage of continued improvement, and to the extent that DIY architectural coatings business improves. We're well positioned at Alizé because our utilization rates are pretty low right now for aqua flow, and we are increasing our capacity there and can ramp that project up based on how we see demand unfold. And again, HEC, we're commissioning the new unit at Hopewell now. We've been doing that for a while. And, as you'll recall,

Guillermo Novo: About a year or so ago, we completed the commissioning of our new continuous dryer there, which was a major bottleneck for us in terms of general cellulose capacity, and so that's now off the table, which is also good. But I think, Mike, the other comment I would make on just capacity utilization is just to reinforce our innovation and growth. For all these new projects, we're basically not making significant capital investments. So for our transformed vegetable oils, we have capacity already in two of our plants so that as this ramps up, we have plenty to support growth there.

Michael Sison: The rest then is the actions that we take all these, you know, portfolio actions, driving, and sticking to our strategy. You know, I think that's why we're making the point of, once things stabilize, it's what we do that's going to make a difference. It's not just recovery now.

John Roberts: Our next question comes from John Roberts with Mizzou. Your line is open. Thank you. On the cellulosic restructuring, if you look, gross profit for specialty additives and intermediates was both down 60 percent-ish. Gross margins are actually lower in specialty additives than they are in intermediates.

John Roberts: Any thought of merging those two segments or even just pulling the cellulosic plants out of specialty additives, putting them in intermediates, and having them sell to the other segments the same way you sell BDO from the intermediate segment to the other segment? I think it's a little bit more, more, uh, strategic for us to keep it in line with our businesses. I mean, one thing you're seeing in specialty additives is all of the absorption issues of the HEC, as an example, and CMC are captured in specialty additives. So they're the landlord, so they're getting all the hits.

Guillermo Novo: It's not just, I mean, they're the biggest volume in HEC, but in CMC, they're not the biggest volume, but it's on their site. So there's a little bit more of a distortion, you know, that some of the products that are down are in life science and personal care, and we're exiting that. So we'll resolve those issues moving forward. But if you look at HEC with the recovery and all that, I think, you know, that is a core business. You know, this is sort of the model that we have for how we build scale with additives. You know, we have to have one or two applications that give it more scale for manufacturing production, and then we're able to sell them out.

John Roberts: It's a little bit different than intermediates where it's just BDO that we're making. It is a true, true commodity. There are many producers. We are a very small producer.

Guillermo Novo: It just gives us back integration. We're the largest APC player. So, you know, I think there we need to make sure that we're controlling it and driving it per our core business, which is our specialty out of this. And since you're just back from China, we had an extended, I think, Chinese New Year shutdown period last year as the Chinese economy was reopening. What are your thoughts on how this Chinese New Year plays out? So, so, you know, I think not just the new year, but I think, in general, things have slowed down in terms of our plant in China, specifically HEC. A lot of it is coatings, and it stays in China; we don't export much.

Guillermo Novo: So it's, it's still operating well, but the volumes are down. We are well aligned with some of the big players, and they did well in the last year because of just their own shares and, and, and commercial activities. But in general, the property market, and all that we are seeing a general slowdown in China, the big question is going to be not so much the Chinese New Year, it's what actions do we see, you know, in support of the real estate and construction market over the coming months. And there's some indication that that is something that is at play at this point in time. But, but clearly, for us, you know, China in 2024 is going to be stable, but it's not going to recover, you know; we're not expecting it to just recover very quickly.

John Roberts: At this point in time, thank you. Thank you. That concludes the question and answer session. At this time, I would like to turn the call back to Guillermo Novo for closing remarks. Okay, thank you, Abigail.

And thank you, everyone, for your questions and participation. And we look forward to engaging all of you in the coming weeks and get into more discussions. But I hope as, you know, the big takeaways, one, that we are seeing some improvement in the overall market dynamics. Number one, two, that we're focused on our strategy and our actions. And we're going to continue to drive them as we move forward and that we believe there's a great future ahead in a lot of these new technologies and for Ashland. So thank you very much for your time, and look forward to talking to you soon. Thank you for your participation in today's conference. This does conclude the program. You may now disconnect, and many more. Thank you.

Q1 2024 Ashland Inc Earnings Call

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