Q4 2023 Stepan Co Earnings Call

February 20, 2024

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Operator: Greetings and welcome to the Stepan Company fourth quarter and full year 2023 earnings conference call. During the presentation, all participants will be in a listen-only mode.

Greetings and welcome to the Stepan company fourth quarter and full year 2023 earnings conference call.

During the presentation, all participants will be in a listen only mode.

Operator: Afterward, we will conduct a question and answer session. As a reminder, this call is being recorded on Tuesday, February 20th, 2020. It is now my pleasure to turn the call over to Mr. Luis Rojo. Vice President and Chief Financial Officer of Stepan Co. Rojo, please go ahead. Good morning, and thank you for joining Stepan Company's fourth quarter and full year 2023 financial review. Before we begin, please note that information in this conference call contains forward-looking statements, which are not historical facts. These statements involve risk and uncertainties that will cause actual results to differ materially, including but not limited to prospects for our foreign operations, global and regional economic conditions, and factors detailing our security and exchange condition filing. In addition, this conference call will include discussions of adjusted net income, adjusted EBITDA, and free cash flow, which are non-GAAP measures.

Afterwards, we will conduct a question and answer session.

As a reminder, this call is being recorded.

Tuesday February 20th 2024.

It is now my pleasure to turn the call over to Mr. Luis Rojo.

President and Chief Financial Officer of Stepan Company. Mr. Rojo. Please go ahead.

Good morning, and thank you for joining Stepan company's fourth quarter and full year 2023 financial review before.

We begin please note that information in this conference call contains forward looking statements.

Which are not historical fact.

These statements involve waistband, uncertainties that could cause actual results to be materially.

Including but not limited to prospects for our foreign operations.

Well I'm going to get on economic conditions.

There is detailed in our securities and exchange filings.

In addition, this conference call will include discussions of adjusted net income adjusted EBITDA and free cash flow, which are non-GAAP measures, we provide reconciliations to comparable GAAP measures in the earnings presentation and press release, which we have made available at www <unk> com.

Operator: We provide reconciliations to the compatible GAAP measures in the earnest presentation and press release, which we have made available at www.stepan.com under the investor section of our website. Whether you're joining us online or over the phone, we encourage you to review the investor's slide presentation. We make these slides available at approximately the same time as when the earnest release is issued, and we hope that you find the information and perspective helpful.

Com under the investors section of our website.

Well, if you are joining us online or over the phone. We encourage you to review the investor Slide presentation.

We make these slides available at approximately the same time of the earnings release is issued and we hope that you find information and perspectives helpful.

Luis E. Rojo: With that, I would like to turn the call over to Mr. Scott Behrens, our President and Chief Executive Officer. Good morning, and thank you all for joining us today to discuss our fourth quarter and full year results. To begin, I will share our fourth quarter and full year highlights. Luis will then provide additional details on our financial results, and I will finish up with comments on our strategic investments and will also provide brief comments on 2024. For the full year, adjusted net income was $50.7 million versus a record prior year of $153.5 million.

With that I would like to turn the call over to Mr. Scott Behrens, our president and Chief Executive Officer.

Good morning, and thank you all for joining us today to discuss our fourth quarter and full year results.

To begin I will share our fourth quarter and full year highlights Luis will then provide additional details on our financial results and I will finish up with comments on our strategic investments and will also provide brief comments on 2024.

For the full year adjusted net income was $57 million versus a record prior year of $153 5 billion.

Scott Behrens: Earnings for the full year were significantly impacted by an 11 percent decline in volume due to a slowdown in demand across most end-use markets, including significant customer and channel inventory destocking. While we believe the negative impacts of destocking are mostly behind us, we continue to experience destocking within our agricultural business at the start of 2024. The team did an excellent job controlling our cash expenses. Cash expenses were similar to the prior year due to proactive headcount and discretionary expense controls implemented earlier in the year and lower incentive-based compensation accruals.

Earnings for the full year were significantly impacted by an 11% decline in volume due to a slowdown in demand across most end use markets, including significant customer and channel inventory destocking.

While we believe the negative impact of Destocking are mostly behind US we continue to experience destocking within our agricultural business at the start of 2024.

The team did an excellent job controlling our cash expenses cash expenses were similar to the prior year due to proactive head count and discretionary expense controls implemented earlier in the year and lower incentive based compensation accruals. Additionally.

Scott Behrens: Additionally, we executed a voluntary early retirement program and other fourth-quarter workforce productivity actions that will deliver savings in 2024. In 2023, our cash flow from operations increased to $175 million, representing growth of 9% of $14 million compared to the previous year. The improvement in liquidity was driven by reducing inventory levels while we continued with our significant level of investment in our strategic growth project. In the fourth quarter, the company reported adjusted net income of $7.5 million versus $13.5 million in the prior year.

Additionally, we executed on our voluntary early retirement program and other fourth quarter workforce productivity actions that will deliver savings in 2024.

In 2023, our cash flow from operations increased to $175 million, representing growth of 9% or $14 million compared to the previous year.

The improvement in liquidity was driven by reducing inventory levels, while we continued with our significant level of investment in our strategic growth projects.

In the fourth quarter. The company reported adjusted net income of $7 $5 million versus $13 5 million in the prior year.

Scott Behrens: Volume was up 3% versus the prior year, driven by double-digit growth in polymers and 1% up in volume in surfactants. With Insurfactants, we delivered strong volume growth and personal care from our low 1,4-Dioxane investments. We also grew volume in the industrial cleaning and maintenance market and with our distribution partners. Latin American surfactants volume also grew strongly double digits as we continue recovering the business. These gains were partially offset by continued customer and channel destocking in the agricultural end market. Expenses were similar to the prior year due to proactive headcount and discretionary expense controls implemented earlier in the year and lower incentive-based compensation accruals. Adjusted EBITDA for the fourth quarter was $37.5 million versus $40.0 million in the prior year.

Volume was up 3% versus prior year, driven by double digit growth in polymers and 1% after the volume in surfactants.

Within surfactants, we delivered strong volume growth in personal care from a low one four vaccine investments. We also grew volume in the industrial cleaning and market and with our distribution partners.

Latin American surfactants volume also grew strong double digits as we continue recovering the business.

These gains were partially offset by continued customer and channel destocking in the agricultural end market.

Expenses were similar to prior year due to proactive head count and discretionary expense controls implemented earlier in the year and lower incentive based compensation accruals.

Adjusted EBITDA for the fourth quarter was $37 $5 million versus 40 $401 million in the prior year the.

The reduction of 6% and adjusted EBITDA was largely driven by surfactants and specialty products, partially offset by growth in polymers.

The fact that EBITDA was lower due to an unfavorable customer and product mix lower income in agricultural chemicals, and lower revenues within our biocide product lines.

Latin American surfactants experienced lower volumes and margins due to competitive imports spec.

Specialty products was down versus record results last year due to pricing pressure and higher cost raw materials adjusted.

Adjusted EBITDA for polymers nearly doubled due to strong volume growth.

Scott Behrens: We continue to make significant progress on our cash objectives, delivering another $19 million reduction in our inventory levels during the last quarter of the year. Additionally, we delivered $22 million of positive free cash flow during the quarter as we finished our heavy capital investment phase. In the fourth quarter, our board of directors declared an increase to the quarterly cash dividend of one cent per share or three percent, marking the 56th consecutive year that the company has increased its cash dividend to stockholders. During the fourth quarter of 2023, the company paid $8.4 million in dividends to shareholders and $33 million in dividends to shareholders for the full year. The company did not repurchase any company stock during the year and has $125.1 million remaining under the share repurchase program authorized by the Board of Directors.

We continue to make significant progress on our cash objectives, delivering another $19 million reduction in our inventory levels during the last quarter of the year we.

We delivered $22 million of positive free cash flow during the quarter as we finished our heavy capital investment phase.

In the fourth quarter, our board of directors declared an increase to the quarterly cash dividend of <unk> <unk> per share or 3%, marking the 56th consecutive year that the company has increased its cash dividend to stockholders.

During the fourth quarter of 2023, the company paid $8 $4 million in dividends to shareholders and $33 million in dividends to shareholders for the full year.

The company did not repurchase any company stock during the year and has $125 $1 million remaining under the share repurchase program authorized by the board of directors.

We remain confident in the strength and diversity of our business and its ability to generate cash that will allow us to invest in our current business pursue strategic M&A opportunities and return cash to our shareholders.

Scott Behrens: We remain confident in the strength and diversity of our business and its ability to generate cash that will allow us to invest in our current business, pursue strategic M&A opportunities, and return cash to our shareholders. In summary, 2023 was a very challenging year for the company, but I am proud and grateful for the resilience and effort shown by our team in executing the two biggest growth projects in the company's history while concurrently delivering our productivity gains and workforce. Luis will now share some details about our fourth quarter and full year results. Thank you, Scott. My comments will generally follow the slide presentation.

In summary, 2023 was a very challenging year for the company by and proud and grateful for the resilience and efforts shown by our team in executing the two biggest growth projects in the company's history, while concurrently delivering our productivity gains and workforce actions.

Luis will now share some details about our fourth quarter and full year results.

Thank you Scott My comments will generally follow the slide presentation, Mr. Scott with a slide five to recap the quarter.

Fourth quarter adjusted net income was $7 5 million or <unk> 33 per diluted share.

Versus $13 5 million or <unk> 59 per diluted share for the fourth quarter of last year.

Typically the adjusted net income for the fourth quarter is still deferred compensation expenses and environmental reserve changes.

Luis E. Rojo: Let's start with slide five to recap the quarter. Fourth quarter adjusted net income was $7.5 million, or $0.33 per diluted share, versus $13.5 million, or $0.59 per diluted share for the fourth quarter of last year. Specifically, adjusted net income for the fourth quarter excludes deferred compensation expenses and environmental reserve changes.

Both items were similar to a prior year for a total of $2 $7 million after tax.

Finally, we recorded restructuring charges of $6 million. After tax. These include our workforce productivity program as well as non cash asset and goodwill impairments.

The deferred compensation figures represent the net income related to the company's deferred compensation plan azuela gas cellular stock appreciation rights for our employees because these liabilities change where they're moving the stock price will exclude this item from our operational discussion the.

Luis E. Rojo: Both items were similar to a prior year for a total of $2.7 million after tax. Finally, we recorded restructuring charges of $6 million after tax. This includes our workforce productivity program as well as non-cash asset and goodwill impairment. The deferred compensation figures represent the net income related to the company's deferred compensation plan, as well as cash settled stock appreciation rights for our employees. Because these liabilities change with the movement in the stock price, we exclude this item from our operational discussion. Slide 6 shows the total company net income breach for the fourth quarter compared to last year's fourth quarter and breaks down the decrease in adjusted net income. Because this is net income, the figures noted here are on an after-tax basis.

Slide six shows the total company net income bridge for the fourth quarter compared to last year's fourth quarter and breaks down the decrease in adjusted net income because this is net income. The figures noted here are on an after tax basis.

We'll call it at each segment in more detail, but to summarize we believe our excellent operating income growth in polymers and lower operating result, Fortunately tax incentive specialty products.

Slide seven focuses on the surfactant segment results for the quarter. So in fact, our net sales were $370 million for the quarter and 19% decrease versus the prior year.

Selling prices were down 22%, primarily due to the pass through of lower raw material costs unfavorable product mix and competitive pricing pressures in Latin America.

Volume increased 1% year over year, primarily due to strong double digit growth in personal care from our low one for balancing investments.

We also grew volume in the industrial cleaning at market and with our distribution partners.

Luis E. Rojo: We will cover each segment in more detail, but to summarize, we deliver excellent operating income growth in polymers and lower operating results for certain patents and specialty products. Slide 7 focuses on the surfactant segment we sold for the quarter. Surfactant net sales were $370 million for the quarter, a 19% decrease versus the prior year.

America's Food factory volume also grew strong double digits as we continue recovery in the business.

When all was largely offset by lower demand within the agricultural end market due to continued customer and channel inventory destocking.

Foreign currency translation positively impacted net sales by 2%.

So the fact that operating income for the quarter decreased $6 9 million mainly.

Mainly due to the product mix and lower unit margins in Latin America due to competitive pressures.

Now turning to polymers on slide eight net sales were $147 million, a 1% decrease versus the prior year.

Luis E. Rojo: Selling prices were down 22%, primarily due to the pass-through of lower raw material costs, unfavorable product mix, and competitive pricing pressures in Latin America. Volume increased 1% year-over-year, primarily due to strong double-digit growth in personal care from our low $1.4 billion investment. We also grew volume in the industrial cleaning and market and with our distribution partners. Latin America's surfactant volume also grew by a strong double-digit as we continue recovering the business. However, this growth was largely offset by lower demand within the agricultural aid market due to continued customer and channel inventory stocking. Foreign currency translation positively impacted net sales by 2%. Surfactant operating income for the quarter decreased $6.9 million, mainly due to the product mix and lower unit margins in Latin America due to competitive pressure.

Volume increased 10% driven by a 12% increase in global aggregate volumes.

Demand within the specialty polyol business.

<unk> experienced strong growth in all regions.

Selling prices decreased 15%, primarily due to the pass through of lower raw material costs.

Foreign currency translation positively impacted net sales by 4%.

Volume and operating income increased more than four times versus prior year, primarily due to the 12% increase in global rigid polyol volumes and margin improvements.

Finally, our specialty products operating income decreased $3 9 million. This decline was mostly attributable to lower unit margin and volume within the NCD product line.

The lower unit margins were primarily due to a competitive pricing pressures starting to slide nine for the full year. Adjusted net income was $50 7 million.

Or $2 21 per diluted share.

67% decrease versus a record $153 $5 million or $6 65 per share in the prior year.

Luis E. Rojo: Now, turning to polymers on slide 8, NET sales were $147 million, a 1% decrease versus the prior year; volume increased 10% driven by a 12% increase in global rigid polio and higher demand within the specialty polio business. Rigid foliage experienced strong growth in all regions; selling prices decreased 15% primarily due to the path through of lower raw material costs; foreign currency translation positively impacted net sales by 4%. Polymer Operating Income increased more than four times versus the prior year, due to the 12% increase in global rigid volume and margin improvement. Finally, specialty product operating income decreased $3.9 million.

Total company volume declined 11% due to lower demand and significant cost slowdown in China inventory destocking across most of our company and markets.

Adjusted EBITDA for 2023 was $180 million.

A decrease of 40% versus a record year in 2022.

The decrease was largely driven by the volume reduction and lower overhead absorption.

That's the effect on segment delivered operating income of $72 million.

Down from 56% compared to prior year.

And by a 9% reduction in volume.

The polymer segment delivered operating income of $61 million down 27% versus the prior year driven by a 14% reduction in volume finally, the specialty product segment delivered operating income of $11 $5 million down 62% versus prior year, driven by lower volumes and margin contraction.

Luis E. Rojo: This decline was mostly due to lower unit margins and volume within the MCT product line. The lower unit margins were primarily due to a competitive price impression. Turning to slide nine, for the full year, adjusted net income was $50.7 million, or $2.21 per share, a 67% decrease versus a record $153.5 million, or $6.65 per dilute share, in the prior year. Total company volume declined 11% due to lower demand and significant cost from land channel inventory stocking across most of the company and market. Adjusted EBITDA for 2023 was $180 million, a decrease of 40% versus our record year in 2022. The decrease was likely driven by the volume reduction and lower overhead absorption of Sufax and Segment delivered an operating income of $72 million, down 56% compared to the prior year, driven by a 9% reduction in volume.

Due to competitive dynamics.

The combined full year effective tax rate was 17% in 2023.

22% in the prior year. This year over year decrease was primarily attributable to R&D tax credits and stock based compensation awards over a lower pre tax base.

We are projecting a higher effective tax rate for 2024 due to an anticipated this allowance of guilty deduction and foreign tax credits, resulting from the expected election of bonus depreciation for our Pasadena capital investment.

Moving onto slide 10, we continue making significant significant progress on our cash position, we have increased our efforts to lower working capital and reduced capital spending to adapt to the current business environment.

For the year Gastro operation was $175 million up 9% versus prior year.

During the year, we deployed $331 million again capex.

<unk> debt payments and dividends finally, we reduced inventory by $102 million versus Q1 2023.

Luis E. Rojo: The polymer segment delivered operating income of $61 million, down 27% versus the prior year, driven by a 14% reduction in volume. Finally, the specialty product segment delivered operating income of $11.5 million, down 62% versus the prior year, driven by lower volumes and margin contraction due to competitive dynamics. The company's full-year effective tax rate was 17% in 2023 versus 22% in the prior year. This year-over-year decrease was primarily attributed to R&D tax credits and stock-based compensation awards over a lower pre-tax base.

The company full year capital spending was $260 million versus $302 million in the prior year inclusive of our low one for balancing apathy and investments in the U S. For 2024, we are projecting our capital expenditures will return to historical levels, while still executing the final phase of our <unk>.

In our project.

Now beginning on slide 11, and 12 as Scott will update you on our strategic priorities.

Thanks, Luis I will focus my comments on our cost and cash management initiatives and on the progress of our major capital investments and strategic priorities.

Despite continued pressure pressure from general cost inflation and higher expenses related to our major growth investments in Pasadena, and low one four dioxane, our cash expenses remained flat year over year.

Luis E. Rojo: We are projecting a higher effective tax rate for 2024 due to an anticipated disallowance of the guilty deduction and foreign tax credits resulting from the expected election of bonus depreciation for our Pasadena capital investment. Moving on to slide 10, we continue making significant progress on our cash position. We have increased our efforts to lower working capital and reduce capital spending to adapt to the current business environment. For the year, cash flow from operations was $175 million, up 9% versus the prior year.

Throughout the year, we took proactive actions to control costs and also successfully executed a significant productivity program that led to a 9% increase in cash generated from operations.

As you May recall from our October earnings call, we anticipate returning to positive free cash flow generation. This year now that we are approaching the end of our heavy investment phase.

The cost reduction activities initiated last year, along with additional productivity and cost out programs underway in 2024.

Which are centered around improved operational performance across our manufacturing network are expected to deliver $50 million in pretax savings in 2024.

Moving to slide 12, construction at our new <unk> production facility in Pasadena, Texas is approximately 80% complete and we expect the plant to startup in the third quarter of 2024.

Luis E. Rojo: During the year, we deployed $331 million against capital investments, debt payments, and dividends. Finally, we reduced inventory by $102 million versus Q1 2023. The company's full-year capital spending was $260 million versus $302 million in the prior year, inclusive of our low-1-4 dioxin at Pasadena Investments in the U.S. For 2024, we are projecting that our capital expenditures will return to historical levels while still executing the final phase of our Pasadena project. Now, beginning on slides 11 and 12, Scott will update you on our strategic priorities. Thanks, Luis.

The underlining our constellation business that supports the Pasadena investment continued its volume growth during 2023 and at a very attractive unit margin. Despite the continued destocking activity happening within the agricultural chemicals market.

As you know, we have increased north American capability and capacity to produce either sulfates that meet new regulatory limits on <unk>.

Recently installed assets at our low sales facility are now mechanically completed new contracted low one Florida oxime volumes have already started shipping from the site and should grow as we reach full installed capacity during the first quarter of 2024.

Stepping now has the largest installed low one toward oxalate production capacity, serving the north American merchant market.

Which will enable step in to maintain and grow our north American sulfonation business in 2024 and beyond.

In early 2020 for our mill sale side encountered operational interruptions due to a series of power disruptions from our external power provider compounded by a period of extremely cold weather in January.

The plant was able to successfully restart most unit operations, our Falcon hydride and Polyol unit operations were more significantly impacted by the unplanned outage and we expect to be back to full production and polyol shortly.

Moving to slide 13, as we look to 2024, we believe volumes and margins will improve due to continued recovery in rigid polyol demand growth and surfactant volumes driven by new contracted business along with the expected recovery of the agricultural business in the second half of the year and lower overall while.

Scott Behrens: I will focus my comments on our cost and cash management initiatives and on the progress of our major capital investments and strategic priorities. Despite continued pressure from general cost inflation and higher expenses related to our major growth investments in Pasadena and low-1,4-Dioxane, our cash expenses remain flat year-over-year. Throughout the year, we took proactive actions to control costs and also successfully executed a significant productivity program that led to a 9% increase in cash generated from operations. As you may recall from our October earnings call, we anticipate returning to pre-positive free cash flow generation this year now that we are approaching the end of our heavy investment phase. The cost reduction activities initiated last year, along with additional productivity and cost-out programs underway in 2024, which are centered around improved operational performance across our manufacturing network, are expected to deliver $50 million in pre-tax savings in 2024.

Material costs versus 2023.

Our cost reduction activities are expected to deliver $50 million in pre tax savings in 2024, which will help offset future inflation increased expenses associated with the planned commissioning of our new Pasadena constellation assets and higher incentive based compensation expenses.

A combination of anticipated market recovery executing our strategic initiatives.

Phil mentioned cost reductions should position us well to deliver adjusted EBITDA growth and positive free cash flow in 2024, we remain confident in our long term growth and innovation initiatives.

This concludes our prepared remarks at this time I'd like to turn the call over for questions. Daniel. Please review the instructions for the question portion of today's call.

To ask a question. Please press star one on your telephone.

Wait for your name to be announced.

Draw. Your question. Please press star one again.

Those are minor and Thats star one one to ask a question.

One moment, while we compile the Q&A roster.

Our first question comes from Mike Harrison with Seaport Research Partners. Your line is now open.

Scott Behrens: Moving to slide 12, construction on our new alkoxylation production facility in Pasadena, Texas, is approximately 80% complete, and we expect the plant to start up in the third quarter of 2024. The underlining alkoxylation business that supports the Pasadena investment continued its volume growth during 2023 and at a very attractive unit margin, despite the continued destocking activity happening within the agricultural chemicals market. As you know, we have increased North American capability and capacity to produce ether sulfates that meet new regulatory limits on 1,4-Dioxane. Recently installed assets in our no-sale facility are now mechanically completed.

Hi, good morning.

Good morning, Good morning, Mike.

So I wanted to start out with a couple of questions on surfactant you mentioned a lot of the volume growth there was related to recent low one four dioxane investment.

Can you just maybe give a little bit more color on where those assets are in their ramp what the customer response has been.

If you could talk at all about what the margins or returns have looked like there compared to your expectations.

Sure Yes.

Yes, so Mike over the last 18 to 24 months, we've gone heavy investment phase for one four dioxane capability.

We did install.

Scott Behrens: New contracted low-1,4-doctrine volumes have already started shipping from the site and should grow as we reach full installed capacity during the first quarter of 2024. Stepan now has the largest installed low-1-fluorodoxy production capacity in North America, which will enable Stepan to maintain and grow our North American sulfonation business in 2024 and beyond. In early 2024, our Milkdale site encountered operational interruptions due to a series of power disruptions from our external power provider compounded by a period of extremely cold weather in January. However, the plant was able to successfully restart most unit operations.

New assets at both of our Winder, Georgia facility and two separate production units at our <unk> facility.

All three of those assets are now up and operational with the last.

Asset at loan sale, which is going through final commissioning and start up this quarter.

But volumes have sequentially been ramping up as we bought each of those three independent assets up over the last 12 months or so.

In terms of margins I think it's.

Asia.

Mike I don't know if you were waiting for order context on volume growth things are factors. So personal care grew a strong double digit.

Due to the low one for valves and investment that is called was mentioning we had a strong but would be a good opening Latin America as well in surfactants, we grew with our distribution partners.

Operator: Arthalic and hydride and polyol unit operations were more significantly impacted by the unplanned outage, and we expect to be back to full production in PA polyol shortly. Moving to slide 13. As we look to 2024, we believe volumes and margins will improve due to continued recovery in rigid polyols demand, growth in surfactant volumes driven by new contracted business, along with the expected recovery of the agricultural business in the second half of the year, and lower overall raw material costs versus 2023. Our cost reduction activities are expected to deliver $50 million in pre-tax savings in 2024, which will help offset future inflation, increased expenses associated with the planned commission A combination of anticipated market recovery, executing our strategic initiatives, and the aforementioned cost reductions should position us well to deliver adjusted EBITDA growth and positive free cash flow in 2024.

High single digits mid to high single digits, we grew in institutional cleaning as well.

So the plus 1% that out that you'll see in <unk> is coming from a lot of places with with good good old, but unfortunately of course offset by the Destocking in act. So if you exclude the destocking in <unk> grew 5%, which is a great robust number.

Alright, Thanks, that's very helpful.

And maybe a little bit more detail on what Youre seeing in Latin America, obviously.

The AG business is dragging there, but I think you mentioned some pricing pressure some share loss related to imported products.

So just curious if you can talk about.

Any actions, you're taking and kind of what the path to better earnings in Latin America surfactants might look like.

Yes, sure Mike, Yes, Youre, absolutely correct as we've shared on prior calls.

With the supply chain disruptions in the second half of 2022 and.

Customers were looking for security of supply I think enticed in imports early in 2023, which caused some of our margin and.

Operator: We remain confident in our long-term growth and innovation initiative. This concludes our prepared remarks. At this time, I'd like to turn the call over to questions. Daniel, please review the instructions for the question portion of today's call. To ask a question, please press star 1-1 on your television and wait for your name to be called. For all your questions, please press star 1 again.

<unk> share issues, but im happy to report we are recovering our share in the marketplace and margins should continue to gradually improve going forward.

Mike One thing that will happen in 2023, and that's why margins are depressed in Latin America is it is a competitive situation, but also carrying.

Operator: Minor. That's star 1-1 to ask a question. One moment while we compile the Q&A roster. Our first question comes from Mike Harrison with Seaport Research Partners. Your line's now open. Hi, good morning.

High cost raw materials saw.

Actually we just close out the last high cost material in January.

But that was a big drag for the region in 2023 and that should improve in 2024.

Michael J. Harrison: Morning, Mike. Good morning, Mike. I wanted to start out with a couple of questions on surfactants.

Alright perfect.

And then I guess.

Switching over to the comments you made on the <unk> facility.

Scott Behrens: You mentioned a lot of the volume growth there was related to the recent low 1,4-dioxane investment. Maybe you could give a little bit more color on where those assets are in their ramp, what the customer response has been, and I guess if you can talk at all about what the margins or returns have looked like there compared to your expectations. Sure. Yeah, Mike, over the last 18 to 24 months, we've gone on a heavy investment phase for 1,4-Dioxane capability. We installed new assets at both our Winder, Georgia facility and two separate production units at our Millsdale facility. All three of those assets are now up and operational, with the last asset at Millsdale going through final commissioning and startup this quarter. Volumes have sequentially been ramping up as we brought each of those three independent assets online over the last 12 months or so. In terms of margins, I think it's Bishop.

Power disruption and the operational issues you have there.

<unk>.

I think it would be helpful. If theres any any way for you to quantify the impact there, but I guess my broader question is.

I felt we had gone through some.

Some improvement.

At Melville to reduce the potential impact of power disruption. So maybe just an update on where.

Where we are in terms of improving resiliency there.

Yes, let me give you the let me give you the numbers on Dennis called can also expand on the situation of the mills out.

At the end might be.

These are small number of <unk>. The EBITDA of this company. So we're projecting probably around $5 million of EBITDA impact in Q1 again, we added steel understanding all the all the details are.

Doing the final <unk>.

Some extra tolling expenses. So we don't have a precise number now, but it's going to be roughly.

$5 million.

EBITDA impact in Q1.

Luis E. Rojo: Mike, I don't know if you were waiting for more context on volume growth in surfactants. So, personal care grew strongly double digits due to the low $1,400 investment that Scott was mentioning. We had strong double digit growth in Latin America. As well, in surfactants, we grew with our distribution partners, high single digits, mid to high single digits. We grew in institutional cleaning as well.

Yes, Mike in terms of Youre correct in terms of this has been a focused area of investment over the last couple of years to improve the operational reliability in the winter months, but I can say the site based on our prior investments over the last two years fared much better.

With these power disruptions.

In the month of January.

As I mentioned in my earlier comments, the PAA polyol assets were more impacted than the broader sites.

Michael J. Harrison: So, the plus 1% that you see in surfactants is coming from a lot of places with good growth, but unfortunately, of course, offset by the De-stocking in Act. So, if you exclude the De-stocking in Act, surfactants grew 5%, which is pretty robust. All right, thanks. That's very helpful.

<unk>.

We have obviously more work and more investment to do too.

Fix the areas within the PAA polyol that were disrupted but overall I think we're pretty pleased with that.

We improve the resiliency, we've been able to do through investments over the last couple of years.

And we're working now in partnership with our external power supplier because basketball the brands either.

Scott Behrens: And maybe a little bit more detail on what you're seeing in Latin America. Obviously, the ag business is dragging there, but I think you mentioned some pricing pressure, some share loss related to imported products. So just curious if you can talk about any actions you're taking and kind of what the path to better earnings in Latin America for surfactants might look like. Yeah, sure, Mike.

<unk> situation, so we need to improve resiliency on that side as well.

I forgot to mention I think it's got up.

But a lot of our <unk>. So the majority of the $5 million will be in the polymers business.

Alright very helpful. And then last question for me is more of a high level question.

Luis E. Rojo: Yeah, you're absolutely correct. As we've shared on prior calls, you know, with the supply chain disruptions in the second half of 2022 and customers looking for security of supply, they, I think, enticed us to imports early in 2023, which caused some of our margin and share issues. But I'm happy to report we are recovering our share in the marketplace, and margins have continued to gradually improve going forward. And Mike, one thing that happened in 2023, and that's why margins are depressing in Latin America, is a competitive situation, but also carrying high-cost raw materials. So, actually, we just flushed out the last high-cost material in January. But that was a big drag for the region in 2023, and that should improve in 2024. All right, perfect.

Just on the 2020 for outlook.

You call out a number of positive drivers and talk about.

Yes.

Sure.

EBITDA improvement.

Come which.

I think we all understand that but maybe just a little bit of additional detail or color about how we should think about the cadence of earnings in 2024.

It seems like maybe at some point there should be a meaningful step up or positive inflection point.

Just curious if you could maybe help us understand what the timing looks like on that potential inflection.

Great question, Mike cannot sweep as we mentioned in our prepared remarks, we are still expecting destocking enacted to continue in the first half.

Glad expecting a revamp of the AG business in the second half.

So that's one of our key valuers.

I will say the $50 million productivity program already key team, but you aren't going to have.

Michael J. Harrison: And then I'm switching over to the comments you made on the Millsdale facility and the power disruption and operational issues you have there. I think it'd be helpful if there was any way for you to quantify the impact there, but I guess my broader question is, you know, I thought we had gone through some improvements at Millsdale to reduce the potential impact of power disruption. So, maybe just an update on where we are in terms of improving resiliency there. Let me give you the numbers, and then Scott can also expand on the situation in Miltel. In the end, Mike, it's a small number vis-a-vis, you know, the EBITDA of this company. So we're projecting probably around $5 million of EBITDA impact in Q1. Again, we are still understanding all the details, doing the final sixes, and some extra tolling expenses, so we don't have a precise number now.

Otherwise our ramp up of that program. So you should expect to deliver more savings in the second half that and then in the first half and the third thing that I would say of course Pasadena is one of our key building blocks for the second half on for 2025 still.

Funding of the plant is not going to be all positive at the beginning you need to spend some money.

And but those are the three big building blocks that we see.

And of course, I mean, you know that we have the seasonality effect on the polymers business, where typically Q2 and Q3 on IDEXX stronger with all the construction activity so that.

That that skew the earnings the EBITDA in the second half and Mike I would also just pointed out the underlying core business outside of those specific.

The initiatives that we just went through.

<unk> has demonstrated sequential growth in Q4, so distribution ini Paolo.

Luis E. Rojo: But it's going to be roughly a $5 million EBITDA impact in Q1. Yeah, and Mike, in terms of – you're correct in terms of this has been a focused area of investment over the last couple of years to improve operational reliability in the winter months. And I can say the site, based on our prior investments over the last two years, has fared much better with these power disruptions in the month of January. As I mentioned in my earlier comments, the PA polyol assets were more impacted than the broader site.

<unk> that will continue to should continue to incrementally grow.

Through the quarters going forward, but really the second half of the year is what our new assets come online in passive data and as Louis said, that's where the eggs destocking was supposed to.

Subsides.

All right very helpful. Thanks, very much.

Thank you one moment for our next question.

Yeah.

Our next question comes from.

Anderson with Stifel. Your line is now open.

Yes, thanks, good morning, everyone.

I wanted to follow up on Hey, good morning.

Scott Behrens: And we obviously have more work and more investment to do to fix the areas within the PA polyol that were disrupted. But overall, I think we're pretty pleased with the resiliency we've been able to achieve through investments over the last couple of years. And we are working now in partnership with our external power supplier because that was the driver of this situation. So we need to improve resiliency on that side as well. And I forgot to mention that Scott talked a lot about PA. So the majority of the $5 million will be for polymers. All right, very helpful.

I wanted to follow up on a couple of Mike's questions I think first and foremost I was hoping to get some more context on.

Agriculture, but really more your confidence in a second half recovery given we're still seeing a lot of pressure in Brazil.

On both the Supreme to corn acres, and then just overall firmer financial position.

Yes, so Vincent the good news is the macro trend is there and if you've been reading some of the downstream agricultural companies.

The demand in the field remains right. So this truly is a Destocking act.

Activity that we're going through right now.

I think.

What we have read in his talk to with our customers. The second half is when we should start to see the improved volumes.

Michael J. Harrison: And then the last question for me is more of a high-level question. Just on the 2024 outlook, you call out a number of positive drivers and talk about what is to come, which, you know, I think we all understand that. But maybe just a little bit of additional detail or color about how we should think about the cadence of earnings in 2024. It seems like maybe at some point there should be a meaningful step up or positive inflection point. Just curious if you can maybe help us understand what the timing looks like for that potential inflection.

Right of that ramp up and the geographical.

Cadence of how that happens I do think youre right, Brazil could be.

Probably the slowest to recover are worked through that destocking, but.

Our AG business is global in nature, North America, Europe, and Asia, all important for US. So we have we have good anticipation that we will start to see those volumes recover in the second half.

And this is a 100% in line with the feedback that we're getting from our customers. I mean, this is 100% in language therefore cats.

Okay no that's good to know.

I just called out Brazil, because I think you pointed to that as a specific area of pressure recently, but now that all tracks.

And then kind of going back to the Latin American business, I think you've kind of framed it as imports were incentivized by supply chain disruptions, but.

Luis E. Rojo: Okay, great question, Mike. And as we mentioned in our prepared remarks, we are still expecting this stocking in act to continue in the first half. And we're expecting a revamp of the act business in the second half, and so that's one of our key values. Second, I will say the $50 million productivity program has already kicked in, but you are going to have, you know, a gradual ramp-up of that program. So you should expect to deliver more savings in the second half than in the first. And the third thing that I would say, of course, Pasadena is one of our key building blocks for the second half and for 2025. Still, starting up the plant is not going to be all positive at the beginning. You need to spend some money.

If I recall those were Chinese imports that can be tough to compete with once they kind of get get a toe hold and so are you comfortable with where you are running those assets from a margin perspective, right now or.

If the if the imports don't.

Nice, let's say.

Is there more room for you to compete.

This being a domestic supplier or is this something that youre going to have to continue to monitor pretty pretty closely.

No.

Think we feel pretty good Vincent as Luis mentioned with that inventory hangover in the first half of last year, we work to ensure through high cost raw materials, which really impacted margins as we competed in the domestic market down there.

Scott Behrens: But those are the three big building blocks that we see. And of course, I mean, you know that we have a seasonality effect on the polymers business, where typically, Q2 and Q3 are stronger with all the construction activity. So that skew there means that it will be done more in the second half.

All things equal.

Our customers prefer to buy from local suppliers.

And when raw material valuations are matching where market pricing is I think we're going to win win that game and I think our Q4, where we reported double digit volume growth as is demonstrating that and we expect that to continue quite frankly.

Michael J. Harrison: And Mike, I would also just point out the underlying core business, outside of those specific initiatives that Luis just went through, has demonstrated sequential growth in Q4. So distribution, I&I, polymers, that will continue to, should continue to grow incrementally through the quarters going forward. But really, the second half of the year is when our new assets come online in Pasadena, and as Luis said, that's when agricultural de-stocking is supposed to subside. All right, very helpful. Thanks very much.

But yes margins can always improve we're not.

Happy or pleased with where the margins are currently at in Q4, but we expect those two to.

We continue to improve as we.

As we go forward.

Excellent good to hear and then I've just got two really quick ones.

You mentioned, the bioscience business being a bit of a headwind does that just continued destocking or is there may be some customer concentration on that on that portfolio, that's creating one off headwind.

Operator: Thank you. One moment for our next question. Our next question comes from Vincent Anderson. Default your lines now.

Yes, it was really customer concentration and just.

Rolling off some of the.

Vincent Alwardt Anderson: Yeah, thanks. Good morning, everyone.

Covid types of activity and business.

Scott Behrens: I wanted to follow up on a couple of Mike's questions. I think, first and foremost, I was hoping to get some more context on agriculture, but really more your confidence in, you know, a second half recovery given we're still seeing a lot of pressure in Brazil on both the safrinha corn acres and then just overall farmer finances.

That came off in Q4 of 2022.

Okay.

And then last one is just anything remarkable to report on the kind of annual polyol negotiations this year.

No nothing to report now.

Nothing new to report now.

<unk>.

Vincent you know, it's a very competitive business.

We are a good marketing of stores in the marketplace.

We will continue we will continue protecting our volumes and margin.

Alright, that's all for me thanks, guys.

Scott Behrens: So, Vincent, the good news is the macro trend is there. And if you've been reading some of the downstream agricultural companies, you know, the demand in the field remains, right? So, this truly is a destocking activity that we're going through right now. I think, and again, what we've read and talked to our customers, you know, the second half is when we should start to see improved volumes. Now, the rate of that ramp up and the geographical cadence of how that happens, I do think you're right. Brazil could probably be the slowest to recover or work through that destocking.

Thank you one moment for our next question.

Our next question comes from.

David Silver with CL King and Associates. Your line is now open.

Okay.

Yes, hi, good morning. Thank you good morning, David.

Morning.

Couple of things.

Yes.

I don't think this was asked if it is if it has been I apologize.

But.

During the quarter, you called out or.

In your remarks and in the.

Release.

Growth on the rigid polyol side was called out and.

Double digit growth all regions et cetera.

Scott Behrens: But, you know, our ag business is global in nature; North America, Europe, and Asia are all important for us. So, we have good anticipation that we'll start to see those volumes recover in the second half. And this is 100% in line with the feedback that we're getting from our customers. I mean, this is 100% in line with their fault.

I'm just wondering if you could go back and maybe kind of speak to that just a little bit in other words.

Alright.

Opinion, I mean, thats more construction and durable goods related like industries that have not necessarily been the strongest lately and I believe you called out North America and.

Vincent Alwardt Anderson: Okay, no, it's good to know. I just called out Brazil because I think you pointed to that as a specific area of pressure recently, but no, that all tracks. And then kind of going back to the Latin American business, I think you kind of framed it as, you know, imports were incentivized by supply chain disruptions. But, you know, if I recall correctly, those were, you know, Chinese imports. They can be tough to compete with once they kind of get a toehold. And so, are you comfortable with where you're running those assets from a margin perspective right now, or, you know, if the imports don't play nice, let's say? Is there more room for you to compete?

Europe.

Where maybe the UK has just indicated there in a technical recession.

The German market Hasnt been especially robust.

You called out the volume growth you called out higher margins I believe are per unit margins.

What is what is in your opinion driving that growth is this a share gain situation or.

What type of drivers should we be thinking about for that portion of your polymers business.

Good question, David what I will say is remember that this stocking up for this particular business that started in Q4 2022 saw so what you have you have the effect of not destocking impact and Thats why youll see the 12% in variable there are still a lot.

Scott Behrens: you know, being a domestic supplier, or is this something that you're going to have to continue to monitor? pretty cool. No, I think we feel pretty good, Vincent.

Of growth opportunities for the market for the market with all the construction of DVD that needs to happen on with all the re roofing that needs to happen in the U S. If you look at the pipeline and the backlog of Prado a project.

Vincent Alwardt Anderson: As Luis mentioned, with that inventory hangover in the first half of last year, we were chewing through high-cost raw materials, which really impacted margins as we competed in the domestic market down there. But all things equal, our customers prefer to buy from local suppliers. And when raw material valuations are matching where market pricing is, I think we're going to win that game. And I think our Q4, where we reported double-digit volume growth, is demonstrating that. And we expect that to continue, quite frankly.

Re roofing in North America is still pretty strong.

That should provide a market for.

For the next three to five years. So there is a steel.

This is not like running a peek on what a good. This is just a reflection of not destocking.

And what we believe on what our customers are also saying is roofing and construction activity there is still plenty of opportunity.

Scott Behrens: But yes, margins can always improve. We're not happy or pleased with where the margins are currently at in Q4, but we expect those to continue to improve as we go forward. Excellent. Good to hear. And then I've just got two really quick ones.

Energy conservation with all of that this industry should be healthy for the next few years.

Okay great.

I was hoping to.

Changing subject to your.

Capex budget for fiscal year 2024, so.

Vincent Alwardt Anderson: You mentioned the biocide business being a little bit of a headwind. Does that just continue destocking? Or is there maybe some customer concentration on that, on that portfolio that's creating a one-off headwind? Yeah, it was really customer concentration and just rolling off some of the COVID types of activity and business that came off in Q4 of 2022. Okay, thanks.

The midpoint of your range is almost exactly half of what was spent in 2023.

If I was just to take the midpoint of maybe 130.

I was hoping you could maybe talk about that in terms of how much of that is what you might consider sustaining and then more to the point for the non sustaining for the discretionary portion of the $130 million or so.

Scott Behrens: And then last one, is there anything remarkable to report on the kind of annual polyol negotiations this year? No, nothing new to report now. Nothing new to report now. Vincent, you know, it's a very competitive business. We are good margin stewards in the marketplace. And we will continue. We will continue protecting volumes and margins. All right, that's all for me. Thanks, guys. Thank you. One moment for our next question. Our next question comes from David Silver with C.L. King & Associates, your line is now open.

Could you just kind of highlight.

Where the discretionary capex is being directed so in other words I'm guessing one four dioxane than anything remaining with.

Pasadena is in there, but also wondering does rigid polyol need some incremental capacity there or.

Where else should we be looking for.

Vincent Alwardt Anderson: Yeah. Hi. Good morning.

Where the discretionary portion of your Capex budget for 2024 is being directed thank you.

Vincent Alwardt Anderson: Thank you. Morning. Um, couple of things. I don't think this was asked. If it is, if it has been, I apologize.

Yeah, David This is Scott.

Vincent Alwardt Anderson: But during the quarter, you called out, or in your remarks and in the release, growth on the rigid polyol side was called out, and you know double-digit growth in all regions, etc., and I'm just wondering if you could go back and maybe kind of speak to that just a little bit. In other words, In my opinion, I mean, that's more construction and durable goods related, industries that have not necessarily been the strongest lately. And I believe he called out North America and Europe, you know, where maybe the UK is just indicating that they're in a technical recession, and the German market hasn't been especially robust.

Yeah, no you're spot on.

The $130 million is.

Is inclusive of us, finishing the last final touches on the Pasadena in the 104 to Akshay and investments.

Definitely the minority portion of that $130 million in terms of other discretionary spend I would call them incremental opportunities.

We may be modifying reactors sets too.

Produce or execute on this customer specific opportunities or certain product line extensions.

I would not characterize anything in that 130 outside of Pasadena, and 104 dioxane as significant discretionary spend.

Luis E. Rojo: You know, you called out volume growth; you called out higher margins, I believe, or per unit margins. So what is it, in your opinion, driving that growth? Is this this the share gain situation, or what type of drivers should we be thinking about for that portion of your polymer? Good question, David. What I would say is remember that this talking for this particular business started in Q4 2020. So what you have, you have the effect of not being stopped in impact.

And it's important for us to get these new assets fully up and running and start generating returns against the right. So considered a pause in 2024 for any new major incremental capital discretionary projects.

And I'll leave it at that.

Okay.

Thank you for that.

Luis I did want to ask about the debt structure and if you could just remind me of your.

Luis E. Rojo: And that's why you see the 12% in rigid bodies. There are still a lot of growth opportunities for the market, with all the construction activity that needs to happen, and with all the re-roofing that needs to happen in the US. If you look at the pipeline and the backlog of projects for re-roofing in North America, it is still pretty strong, and that should provide market growth for the next three to five years. So there is still, this is not like we're at a peak and we're good. This is just a reflection of not stopping.

The total debt that you have at the end of the year here.

Half a billion dollars.

You can just remind me how much of that would you consider variable in terms of either.

Fixed rate or something that's been locked in with derivatives, where your interest costs are highly predictable and then what is the balance that might be subject to.

Fluctuations in short term phase III.

Indices.

Vincent Alwardt Anderson: And what we believe and what our customers are also saying is that re-roofing and construction activity, there are still plenty of opportunities for energy conservation, with all of that. This industry should be healthy for the next few years. Okay, great.

Good question, David look as.

You saw $654 million and gross debt 500 million on five.

Our 2014 net bad when you include the 130 that we have from cash and if you think about our debt. The majority is fixed and Aesop I won't say, 65%, 70% of that and we fixed a lot of debt during coffee at a very attractive interest rates below 3% and we also.

Vincent Alwardt Anderson: I was hoping to... change the subject to your CAPEX budget for fiscal year 2024. You know, the midpoint of your range is almost exactly half of what was spent in 2023. You know, if I was just to take the midpoint of maybe 130, I was hoping you could maybe talk about that in terms of how much of that is what you might consider sustaining and then, more to the point for the non-sustaining, for the discretionary portion of the 130 million or so. Could you just kind of highlight, you know, where the discretionary CapEx is being directed? So, in other words, I'm guessing 1,4-Dioxane and anything remaining with Pasadena is in there. But also wondering, you know, do rigid polyols need some incremental capacity there?

Did somebody about the $400 million.

Also hedging below 3%, so say majority stakes at a very attractive rate.

Okay, Great and then last one.

If I could but I was hoping to just get a tiny bit more color on the workplace productivity.

Programs that are the biggest part I guess of the $50 million cost reduction program.

I guess there were some start to adhere but.

You do have kind of a.

Growing global network here and I'm, just kind of scratching my head and I'm wondering if you could qualitatively, maybe just point out one or two areas.

Scott Behrens: Or where else should we be looking for, you know, where the discretionary portion of your CapEx budget for 2024 is being directed? Thank you. Yeah, David. This is Scott.

Where you see.

The most opportunity to get from where you are now to the $50 million I guess run rate in cost reductions over the next year or two thank you.

Scott Behrens: Yeah, no, you're spot on. And the $130 million is inclusive of us finishing the final touches on the Pasadena and the 1,4-dioxane investments. Definitely the minority portion of that $130 million. In terms of other discretionary spends, I would call them incremental opportunities where we may be modifying reactor sets to produce or execute on customer-specific opportunities or certain product line extensions. I would not characterize anything in that $130 million outside of Pasadena and 1,4-dioxane as significant discretionary spend. And it's important for us to get these new assets fully up and running and start generating returns against them, right? So consider it a pause in 2024 for any new major incremental capital discretionary projects. And I'll leave it at that.

Good question, David look the majority of the $50 million coming from the operational side right.

For example.

Logistic the team is doing a great job on reducing our logistic golf I mean of course the market is.

Is in favor of bass, our logistic cost is going down 25, 30%.

Our procurement savings on raw materials.

Improving the operations in the whole supply chain in our plans to radios in efficiencies that we have so 70% roughly 70% of the $50 million is on the operation side.

Then only at 30% as the workforce productivity that we already executed.

This was already the program that we announced last year with the early retirement program.

And some reductions in force so so that the other 30%.

Okay. Thank you very much I'll get back in queue I appreciate it.

Luis E. Rojo: Okay, thank you for that. Luis, I did want to ask about the debt structure, and if you could just remind me of your total debt that you have at the end of the year here, you know, north of half a billion. If you could just remind me, how much of that would you consider variable in terms of either, you know, fixed rate or something that's been locked in with derivatives where, you know, your interest costs are highly predictable? And then what is the balance that might be subject to fluctuations in short-term, you know, base rates or indices? Good question, David.

Okay.

Thank you.

As a reminder to ask a question. Please press star one one on your telephone.

And then one for your name to be announced.

To withdraw your question. Please press star one one.

Second time.

One moment for our next question.

Our next question comes from Dave storms with Stonegate. Your line is now open.

Good morning.

Florida.

Just wondering if I could ask about.

Kind of what you're seeing upstream from a raw materials standpoint.

Our cost and sourcing lines and how you expect that might change over the next coming quarters.

Luis E. Rojo: Look, as you saw, $654 million in gross debt, $500 million in net debt when you include the $130 million that we have from cash. And if you think about our debt, the majority is fixed, and it's, I would say, 65%, 70% of that. And we fixed a lot of debt during COVID at a very attractive interest rate, so below 3%. And we also did some derivatives for $100 million, also hedging below 3%. So the majority fixed at a very attractive rate. Okay, great.

Good question, Dave I know, Luke when you think about raw material prices and pricing.

I think running a pretty good position as you saw Q4, despite our sales down 15% our cost of goods sold is down 17%. So we basically almost hole.

Gross margin flattish.

66 $67 million, despite a 15% drop in Intel saw and you'll see oil now relatively stable bright in the 70 to 80 range and while we have seen is our raw material prices have stabilized.

Luis E. Rojo: And then last one, if I could, but I was hoping to just get a tiny bit more color on the workplace productivity programs that are the biggest part, I guess, of the $50 million cost reduction program. So, you know, there was some a start to it here, but, You know, you do have kind of a growing global network here. And I'm just kind of scratching my head, and I'm wondering if you could qualitatively maybe just point out one or two areas where you see the most opportunity to get from where you are now to the 50 million, I guess, run rate in cost reductions over the next year. Thank you. Good question, David.

A few pockets where that is still coming down a little bit, but <unk> 80 for the 'twenty is stable and this is.

And this is why we are we are catching up on the margin side.

Yeah, and I would just say overall capacity in the chemical industry as much looser than it was 12 months ago 18 months ago right. So.

There is greater optionality and opportunity to really work on the raw material costs in the current environment.

Very helpful. Thank you and then just also.

What's the customer acquisition environment looking like it sounds like you defend your market share pretty well and continue to defend your market share pretty well.

Is there potential to expand into more.

Luis E. Rojo: Look, the majority of the $50 million comes from the operational side, right? For example, logistics. The team is doing a great job reducing our logistics costs. And, of course, the market is in favor of that.

Clients, you know either tier ones through threes.

So that's obviously a big part of our growth strategy within the surfactant business is to continue to.

Service and sell more tier two and tier three customers even last year in the <unk>.

Luis E. Rojo: So our logistics cost is going down 25%, 30%, procurement savings on raw materials, improving the operations in the whole supply chain, in our plans to reduce efficiencies that we have. So 70%, roughly 70% of the $50 million is on the operation side. And then only 30% is the workforce productivity that we already have. This was already the program that we announced last year with the early retirement program. And some reductions in force. So that's the other 30%. Okay, thank you very much. I'll get back in.

The challenging market, we had financially we grew our net customers within surfactants by over 500, new customers.

Those are around the world that.

That truly <unk>.

<unk>, our technical service, our formulation expertise and our broad product line and that continues in a difficult.

Housing market. So we're very excited that.

Our sales and R&D teams continue to do a great job, bringing new customers into the company.

Perfect and then just one more quick clarifying question Luis I think you mentioned earlier that you were through most of the high cost inventory was that specific to surfactants inventory or does that include.

Luis E. Rojo: Thank you. As a reminder, to ask a question, please press star 1-1 on your telephone and then wait for your name to be announced. Again, to withdraw your question, please press star 1-1, second time. We'll move for our next question. Our next question comes from Dave Storms with Stonegate. Your line is now open, more. Gordon.

Polymer and specialty.

Yeah, it's both it's the three businesses or is it pretty visible.

Perfect very helpful. Thank you very much for taking my questions.

Thank you Dave.

Thank you.

I'm showing no further questions at this time I would now like to turn it back to Scott Burrows for closing remarks.

Thank you very much for joining us on today's call. We appreciate your interest and ownership in Stepan company and please have a great day.

David Silver: I was wondering if I could ask about kind of what you're seeing upstream from a raw material standpoint, both from a cost and how you expect that. Good question, Dave. And look, when you think about raw material prices and pricing, I think we're in a pretty good position. As you saw in Q4, despite our sales being down 15%, our cost of goods sold is down 17%. So we basically almost hold a gross margin, flattish $66, $67 million, despite the 15% drop in sales. And you see, oil is now relatively stable, right, in the 70 to 80 range. And what we have seen is our raw material prices have stabilized. There are a few pockets where they are still coming down a little bit, but the 80 for the 20 is stable.

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

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Okay.

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Luis E. Rojo: And this is why we are catching up on the margin. Yeah, and I would just say, you know, overall capacity in the chemical industry is much lower than it was 12 months ago, 18 months ago, right? So there's greater optionality and opportunity to really work on your own general costs in the current system. Very helpful. Thank you. And then also, that's the customer acquisition environment looking like it's own. And Ed Sheeran. Thank you.

Yeah.

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Okay.

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Sure.

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Scott Behrens: Thank you, well, continue to defend market share pretty well. Is there potential to expand into more? clients, you know, either care or don't care, so that's obviously a big part of our growth strategy within the surfactant business is to continue to service and sell more tier two and tier three customers. Even last year in the challenging market we had financially, we grew our net customers within surfactants by over 500 new customers and those who are around the world that truly value our technical service, our formulation expertise, and our broad product line. And that continues in a difficult, challenging market. So we're very excited that our sales and R&D teams continue to do a great job bringing new customers into the company. And then just one more quick clarifying question, Luis, I think you mentioned earlier that you, the high, with that, or did I include a polymer? Yeah, it's both.

Okay.

[music].

Okay.

Yes.

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Luis E. Rojo: It's the three businesses. Sorry. It's the three businesses. Very helpful. Thank you very much for taking the time. Thank you, Dave.

Okay.

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Okay.

Operator: Thank you. I'm showing no further questions at this time. I would now like to turn it back to Scott Behrens for closing remarks. Thank you very much for joining us on today's call. We appreciate your interest in ownership and step in the company, and please have a great day. This concludes today's conference call. Thank you for participating. You may now disconnect. Thanks for watching, and I hope you enjoyed the video. Greetings and welcome to the Stepan Company fourth quarter and full year 2023 earnings conference call. During the presentation, all participants will be in a listen-only mode.

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Yes.

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Yes.

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Luis E. Rojo: Afterward, we will conduct a question and answer session. As a reminder, this call is being recorded on Tuesday, February 20th, 2020. It is now my pleasure to turn the call over to Mr. Luis Rojo, Vice President and Chief Financial Officer of Stepan Company. Mr. Rojo, please go ahead.

Luis E. Rojo: Good morning, and thank you for joining Stepan Company's fourth quarter and full year 2023 financial review. Before we begin, please note that the information in this conference call contains forward-looking statements, which are not historical facts. These statements involve risk and uncertainties that could affect actual results materially, including but not limited to prospects for our foreign operations, global and regional economic conditions, and factors detailing our security and exchange condition filing. In addition, this conference call will include discussions of adjusted net income, adjusted EBITDA, and free cash flow, which are non-GAAP measures. We provide reconciliations to the compatible GAAP measures in the earnest presentation and press release, which we have made available at www.stepan.com under the investor section of our website. Whether you're joining us online or over the phone, we encourage you to review the investment slide presentation. We make these slides available at approximately the same time as when the earnest release is issued, and we hope that you find the information and perspective helpful.

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Scott Behrens: With that, I would like to turn the call over to Mr. Scott Behrens, our President and Chief Executive Officer. Good morning, and thank you all for joining us today to discuss our fourth quarter and full year results. To begin, I will share our fourth quarter and full year highlights. Luis will then provide additional details on our financial results, and I will finish up with comments on our strategic investments and will also provide brief comments on 2024. For the full year, adjusted net income was $50.7 million versus a record prior year of $153.5 million.

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Greetings and welcome to the Stefan Company fourth quarter and full year 2023 earnings conference call.

During the presentation, all participants will be in a listen only mode.

Afterwards, we will conduct a question and answer session.

As a reminder, this call is being recorded.

Tuesday February 20th 2024.

It is now my pleasure to turn the call over to Mr. Luis Rojo.

Vice President and Chief Financial Officer of Stepan Company. Mr. Rojo. Please go ahead.

Good morning, and thank you for joining Stepan company fourth quarter and full year 2023 financial review.

Before we begin please note that information. This conference call contains forward looking statements, which are not historical fact.

These statements involve risks and uncertainties that could cause actual results could differ materially.

Including but not limited to prospects for our foreign operations.

Ill begin on economic conditions and factors detailed in our Securities and Exchange Commission filings.

Scott Behrens: Volume was up 3% versus the prior year, driven by double-digit growth in polymers and 1% up in volume in surfactants. With Insurfactants, we delivered strong volume growth and personal care from our low 1,4-Dioxane investments. We also grew volume in the industrial cleaning and market and with our distribution partners. Latin American surfactant volume also grew strongly double digits as we continue recovering the business. These gains were partially offset by continued customer and channel destocking in the agricultural end market. Expenses were similar to the prior year due to proactive headcount and discretionary expense controls implemented earlier in the year and lower incentive-based compensation accruals. Adjusted EBITDA for the fourth quarter was $37.5 million versus $40.0 million in the prior year.

The first section of our website.

Whether you're joining us online or over the phone. We encourage you to review the Investor Slide presentation. We.

We make these slides available at approximately the same time not with the earnings release is issued and we hope that you'll find information and perspective helpful.

With that I would like to turn the call over to Mr. Scott Behrens, our president and Chief Executive Officer.

Good morning, and thank you all for joining us today to discuss our fourth quarter and full year results.

For the full year adjusted net income was $57 million versus a record prior year of $153 5 billion.

Scott Behrens: The reduction of 6% in adjusted EBITDA was largely driven by surfactants and specialty products, partially offset by growth in polymer. The fact that EBITDA was lower due to an unfavorable customer and product mix, lower income in agricultural chemicals, and lower revenues within our file side product line. Latin American surfactants experienced lower volumes and margins due to competitive imports, specialty products were down versus record results last year due to pricing pressure and higher cost raw materials. Adjusted EBITDA for polymers nearly doubled due to strong volume growth. We continue to make significant progress on our cash objectives, delivering another $19 million reduction in our inventory levels during the last quarter of the year. We delivered $22 million of positive free cash flow during the quarter as we finished our heavy capital investment phase.

While we believe the negative impact of Destocking are mostly behind US we continue to experience destocking within our agricultural business at the start of 2024.

Additionally, we executed on our voluntary early retirement program and other fourth quarter workforce productivity actions that will deliver savings in 2024.

In 2023, our cash flow from operations increased to $175 million, representing growth of 9% or $14 million compared to the previous year.

Scott Behrens: In the fourth quarter, our board of directors declared an increase to the quarterly cash dividend of one cent per share, or three percent, marking the 56th consecutive year that the company has increased its cash dividend to stockholders. During the fourth quarter of 2023, the company paid $8.4 million in dividends to shareholders and $33 million in dividends to shareholders for the full year. The company did not repurchase any company stock during the year and has $125.1 million remaining under the share repurchase program authorized by the Board of Directors.

The improvement in liquidity was driven by reducing inventory levels, while we continued with our significant level of investment in our strategic growth projects.

In the fourth quarter. The company reported adjusted net income was $7 5 million versus $13 5 million in the prior year.

Volume was up 3% versus prior year, driven by double digit growth in polymers and 1% up in volume in surfactants.

Latin American surfactants volume also grew strong double digits as we continue recovering the business.

These gains were partially offset by continued customer and channel destocking in the agricultural end market.

Expenses were similar to prior year due to proactive headwinds accounting discretionary expense controls implemented earlier in the year and lower incentive based compensation accruals.

Adjusted EBITDA for the fourth quarter was $37 $5 million versus 44 zero million dollars in the prior year the.

The reduction of 6% and adjusted EBITDA was largely driven by surfactants and specialty products, partially offset by growth in polymers.

The fact that EBITDA was lower due to an unfavorable customer and product mix lower income in agricultural chemicals or lower revenues within our biocide product lines.

Latin American surfactants experienced lower volumes and margins due to competitive imports spec.

Specialty products was down versus record results last year due to pricing pressure and higher cost raw materials.

<unk> EBITDA for polymers nearly doubled due to strong volume growth.

We continue to make significant progress on our cash objectives, delivering another $19 million reduction in our inventory levels during the last quarter of the year.

We delivered $22 million of positive free cash flow during the quarter as we finished our heavy capital investment phase.

Luis E. Rojo: Both items were similar to a prior year for a total of $2.7 million after tax. Finally, we recorded restructuring charges of $6 million after tax. This includes our workforce productivity program as well as non-cash asset and goodwill impairment. The deferred compensation figures represent the net income related to the company's deferred compensation plan, as well as cash settled stock appreciation rights for our employees. Because these liabilities change with the movement in the stock price, we exclude this item from our operational discussion. Slide 6 shows the total company net income bridge for the fourth quarter compared to last year's fourth quarter and breaks down the decrease in adjusted net income. Because this is net income, the figures noted here are on an after-tax basis. We will cover each segment in more detail, but to summarize, we deliver excellent operating income growth in polymers and lower operating results for sweet cartons and specialty products; slide 7 focus on the surfactant segment we sold for the quarter. Surfactant net sales were $370 million for the quarter, a 19% decrease versus the prior year.

During the fourth quarter of 2023, the company paid $8 $4 million in dividends to shareholders and $33 million in dividends to shareholders for the full year.

The company did not repurchase any company stock during the year that has $125 $1 million remaining under the share repurchase program authorized by the board of directors.

We will now share some details about our fourth quarter and full year results.

Thank you Scott My comments will generally follow the slide presentation, Mr. Scott with a slide five to recap the quarter.

Fourth quarter adjusted net income was $7 5 million.

<unk> 33 per diluted share versus $13 5 million or <unk> 59 per diluted share for the fourth quarter of last year.

Specifically adjusted net income for the fourth quarter is still deferred compensation expenses and the environmental reserve changes most items were similar to our prior year for a total of $2 $7 million after tax.

Luis E. Rojo: Selling prices were down 22% primarily due to the pass-through of lower raw material costs, unfavorable product mix, and competitive pricing pressures in Latin America. Volume increased 1% year over year, primarily due to strong double-digit growth in personal care from our low one for dialysis investment. We also grew volume in the industrial cleaning and market and with our distribution partners. Latin America's surfactant volume also grew by a strong double-digit as we continue recovering the business. However, this growth was largely offset by lower demand within the agricultural aid market due to continued customer and channel inventory stocking. Foreign currency translation positively impacted net sales by 2%. Surfactant operating income for the quarter decreased $6.9 million, mainly due to the product mix and lower unit margins in Latin America due to competitive pressure.

Finally, we recorded restructuring charges of $6 million. After tax. This include our workforce productivity program as well as non cash asset and goodwill impairments.

The deferred compensation figures represent the net income related to the company deferred compensation plan azuela cash settled stock appreciation rights for our employees because these liabilities change with a more when the stock price with cloud this item from our operational discussion.

Slide six shows the total company net income bridge for the fourth quarter compared to last year's fourth quarter and breaks down the decrease in adjusted net income because this is net income the figures noted here that on an after tax basis.

We'll call. It <unk> said, many more detail, but to summarize we believe our excellent operating income growth and polymers and <unk>.

Lower operating result, Fortunately tax incentive specialty products.

Slide seven focuses on this effect on segment results for the quarter. So in fact, our net sales were $370 million for the quarter and 19% decrease versus the prior year sell.

Selling prices were down 22%, primarily due to the pass through of lower raw material costs unfavorable product mix and competitive pricing pressures in Latin America.

Luis E. Rojo: Now, turning to polymers on slide 8, NET sales were $147 million, a 1% decrease versus the prior year; volume increased 10% driven by a 12% increase in global rigid polio and higher demand within the specialty polio business. Rigid polio experienced strong growth in all regions; selling prices decreased 15% primarily due to the path through of lower raw material costs; foreign currency translation positively impacted net sales by 4%. Polymer Operator Income increased more than four times versus the prior year due to the 12% increase in global rigid volume volumes and margin improvement. Finally, specialty product operating income decreased $3.9 million.

Volume increased 1% year over year, primarily due to strong double digit growth in personal care from our low one four ballots and investments.

We also grew volume in the industrial cleaning at market and with our distribution partners.

Latin America is in fact on volume also grew strong double digits as we continue recovery in the business.

Growth was largely offset by lower demand within the agricultural end market due to continued customer and channel inventory destocking.

Foreign currency translation positively impacted net sales by 2%.

So the fact that operating income for the quarter decreased $6 9 million, mainly due to the product mix and lower unit margins in Latin America due to competitive pressures.

Now turning to polymers on slide eight net sales were $147 million, a 1% decrease versus the prior year.

Luis E. Rojo: This decline was mostly attributed to lower unit margins and volume within the MCT product line. The lower unit margins were primarily due to a competitive price impression starting just like nine for the full year at just $50.7 million, or $2.21 per view to share, a 67% decrease versus a record $153.5 million or $6.65 per billion share in the prior year. Total company volume declined 11% due to lower demand and significant customer and channel inventory distorting across most of the company and market. Adjusted EBITDA for 2023 was $180 million, a decrease of 40% versus our record year in 2022. The decrease was likely driven by the volume reduction and lower overhead absorption of Sufax and Fenton Deliver Operating Income of $72 million, down 56% compared to the prior year, driven by a 9% reduction in volume.

Volume increased 10% driven by a 12% increase in global rigid volumes on higher demand within the specialty polyol business.

<unk> experienced strong growth in all regions.

Selling prices decreased 15%, primarily due to the pass through of lower raw material costs.

Currency translation positively impacted net sales by 4%.

Polymer operating income increased more than four times versus prior year, primarily due to the 12% increase in global rigid polyol volume and margin improvements.

Finally, our specialty products operating income decreased $3 9 million <unk>.

This decline was mostly attributable to lower unit margin and volume within the NCD product line.

Lower unit margins were primarily due to a competitive pricing pressures starting to slide nine for the full year adjusted net income was $50 7 million.

Our $2 21 per diluted share.

67% decrease versus a record $153 $5 million or $6 65 per diluted share in the prior year.

Total company volume declined 11% due to lower demand and significant costs shown on channel inventory destocking across most of our company and markets.

Luis E. Rojo: The Polymer segment delivered operating income of $61 million, down 27% versus the prior year, driven by a 14% reduction in volume. Finally, the Specialty Product segment delivered operating income of $11.5 million, down 62% versus the prior year, driven by lower volumes and margin contraction due to competitive dynamics. The company's full-year effective tax rate was 17% in 2023 versus 22% in the prior year. This year-over-year decrease was primarily attributed to R&D tax credits and stock-based compensation awards over a lower pre-tax base.

Adjusted EBITDA for 2023 was $180 million.

A decrease of 40% versus a record year in 2022.

The decrease was largely driven by the volume reduction and lower overhead absorption.

That's the effect on segment delivered operating income of $72 million.

Don.

56% compared to prior year, driven by a 9% reduction in volume.

The polymer segment delivered operating income of $61 million down 27% versus the prior year driven by a 14% reduction volume finally, our specialty product segment delivered operating income of $11 $5 million down 62% versus prior year, driven by lower volumes and margin contraction with your comfort.

Competitive dynamics.

The combined full year effective tax rate was 17% in 2023 versus 22% in the prior year. This year over year decrease was primarily attributable to R&D tax credits and stock based compensation awards over a lower pre tax base.

We are projecting a higher effective tax rate for 2024 due to anticipated this allowance of DLT deduction and foreign tax credits, resulting from the expected election of bonus depreciation for our Pasadena capital investment.

The year Gastro operation was $175 million.

Luis E. Rojo: During the year, we deployed $331 million against capital investments, debt payments, and dividends. Finally, we reduced inventory by $102 million versus Q1 2023. The company's full-year capital spending was $260 million versus $302 million in the prior year, inclusive of our low one for dioxin at Pasadena Investments in the U.S. For 2024, we are projecting that our capital expenditures will return to historical levels while still executing the final phase of our Pasadena project. Now, beginning on slides 11 and 12, Scott will update you on our strategic priorities. Thanks, Luis.

Up 9% versus prior year.

During the year, we deployed $331 million again capex.

<unk> debt payments and dividends finally, we reduced inventory by $102 million versus Q1 2023.

A company full year capital spending was $260 million versus $302 million in the prior year inclusive of our low one for balancing appetite any investments in the U S. For 2024, we are projecting our capital expenditures will return to historical levels, while still executing the final phase of our <unk>.

In our project.

Now beginning on slide 11, and 12 as Scott will update you on our strategic priorities.

Thanks, Louise I'll focus my comments on our cost and cash management initiatives and on the progress of our major capital investments and strategic priorities.

Scott Behrens: I will focus my comments on our cost and cash management initiatives and on the progress of our major capital investments and strategic priorities. Despite continued pressure from general cost inflation and higher expenses related to our major growth investments in Pasadena and low 1.4 dioxane, our cash expenses remain flat year over year. Throughout the year, we took proactive actions to control costs and also successfully executed a significant productivity program that led to a 9% increase in cash generated from operations. As you may recall from our October earnings call, we anticipate returning to pre-positive free cash flow generation this year now that we are approaching the end of our heavy investment phase. The cost reduction activities initiated last year, along with additional productivity and cost-out programs underway in 2024, which are centered around improved operational performance across our manufacturing network, are expected to deliver $50 million in pre-tax savings in 2024.

Throughout the year, we took proactive actions to control costs and also successfully executed a significant productivity program that led to a 9% increase in cash generated from operations.

As you May recall from our October earnings call, we anticipate returning to positive free cash flow generation. This year now that we are approaching the end of our heavy investment phase.

The cost reduction activities initiated last year, along with additional productivity and cost out programs underway in 2024.

Which are centered around improved operational performance across our manufacturing network are expected to deliver $50 million in pretax savings in 2024.

Scott Behrens: Moving to slide 12, construction on our new alcohol solution production facility in Pasadena, Texas, is approximately 80% complete, and we expect the plant to start up in the third quarter of 2024. The underlining alkosylation business that supports the Pasadena investment continued its volume growth during 2023 and at a very attractive unit margin, despite the continued destocking activity happening within the agricultural chemicals market. As you know, we have increased North American capability and capacity to produce ether sulfates that meet new regulatory limits on 1,4-Dioxane. Recently installed assets in our no-sale facility are now mechanically completed.

Moving to slide 12, construction at our new <unk> constellation production facility in Pasadena, Texas is approximately 80% complete.

Expect the plant to startup in the third quarter of 2024.

As you know, we have increased north American capability and capacity to produce either sulfates that meet new regulatory limits on one <unk>.

Recently installed assets at our loan sale facility are now mechanically completed new contracted low one <unk> volumes have already started shipping from the site and should grow as we reach full installed capacity during the first quarter of 2024.

Scott Behrens: New contracted low-1,4-dioxane volumes have already started shipping from the site and should grow as we reach full installed capacity during the first quarter of 2024. Stepan now has the largest installed low-warm production capacity serving the North American merchant market, which will enable Stepan to maintain and grow its North American sulfonation business in 2024 and beyond. In early 2024, our Miltdale site encountered operational interruptions due to a series of power disruptions from our external power provider compounded by a period of extremely cold weather in January. However, the plant was able to successfully restart most unit operations.

Stepping now has the largest installed low one for vaccine production capacity, serving the north American merchant market.

Which will enable a step and to maintain and grow our north American sulfonation business in 2024 and beyond.

Scott Behrens: Arthalic and hydride and polyol unit operations were more significantly impacted by the unplanned outage, and we expect to be back to full production in PA polyol shortly. Moving to slide 13, as we look to 2024, we believe volumes and margins will improve due to continued recovery and rigid polyol demand, growth in surfactant volumes given by new contracted business, along with the expected recovery of the agricultural business in the second half of the year, and lower overall raw material costs versus 2023. Our cost reduction activities are expected to deliver $50 million in pre-tax savings in 2024, which will help offset future inflation, increased expenses associated with the planned commissioning of our new Pasadena alcoholization assets, and higher incentive-based compensation expenses. A combination of anticipated market recovery, executing our strategic initiatives, and the aforementioned cost reductions should position us well to deliver adjusted EBITDA growth and positive free cash flow in 2024.

Material costs versus 2023.

Our cost reduction activities are expected to deliver $50 million pre tax savings in 2024, which will help offset future inflation increased expenses associated with the planned commissioning of our new Pasadena constellation assets and higher incentive based compensation expenses.

A combination of anticipated market recovery executing our strategic initiatives.

Phil mentioned cost reductions should position us well to deliver adjusted EBITDA growth and positive free cash flow in 2024, we remain confident in our long term growth and innovation initiatives.

Scott Behrens: We remain confident in our long-term growth and innovation initiatives. This concludes our prepared remarks at this time. I'd like to turn the call over to questions. Daniel, please review the instructions for the question portion of today's call. To ask a question, please press star 1-1 on your television and wait for your name to be called. For all your questions, please press star 1 again.

This concludes our prepared remarks at this time I'd like to turn the call over for questions. Daniel. Please review the instructions for the question portion of today's call.

To ask a question. Please press star one one on your telephone.

Wait for your name to be announced.

Draw. Your question. Please press star one again.

Operator: Reminder, that's star 1-1 to ask a question. One moment while we compile the Q&A roster. Our first question comes from Mike Harrison with Seaport Research Partners. Your line is now open. Hi, good morning.

Those are minor that star one one to ask a question.

One woman with poly Q&A roster.

Our first question comes from Mike Harrison with Seaport Research Partners. Your line is now open.

Hi, good morning.

Michael J. Harrison: Morning, Mike. Good morning, Mike. So you, I wanted to start out with a couple questions on surfactants.

Good morning, Michael Good morning, Mike.

So I wanted to start out with a couple of questions on surfactants you mentioned a lot of the volume growth there was related to recent low one four dioxane investment.

Scott Behrens: You mentioned a lot of the volume growth there was related to the recent low 1,4-dioxane investment. Just maybe give a little bit more color on where those assets are in their ramp, what the customer response has been, and I guess if you can talk at all about what the margins or returns have looked like there compared to your expectations. Sure. Yeah, Mike, over the last 18 to 24 months, we've gone on a heavy investment phase for 1,4-Dioxane capability. We installed new assets at both our Winder, Georgia facility and two separate production units at our Millsdale facility.

Can you just maybe give a little bit more color on where those assets are in their ramp what the customer response has been.

If you could talk at all about what the margins or returns have looked like there compared to your expectations.

Sure Yes.

So Mike over the last 18 to 24 months, we've gone out of the heavy investment phase for one four dioxane capability.

We did install.

New assets at both of our Winder, Georgia facility and two separate production units at our mills sale facility.

Scott Behrens: All three of those assets are now up and operational, with the last asset at Millsdale going through final commissioning and startup this quarter. Volumes have sequentially been ramping up as we brought each of those three independent assets online over the last 12 months or so. In terms of margins, I think it's Isaac Beasley, Jose Navarro, Anthony Mendoza, Mike. I don't know if you were waiting for more context on volume growth in surfactants.

All three of those assets are now up and operational with the last.

Asset at low sale, which is going through final commissioning and startup this quarter, but.

But volumes have sequentially been ramping up as we bought each of those three independent assets up over the last 12 months or so.

In terms of margins I think it's.

Asia.

Mike I don't know if you were waiting for order context, some volume growth things are factors. So personal care grew a strong double digit.

Luis E. Rojo: So, personal care grew strongly double digits due to the low $1,400 investment that Scott was mentioning. We had strong double digit growth in Latin America. As well, in surfactants, we grew with our distribution partners in high single digits, mid to high single digits. We grew in institutional cleaning as well.

Due to the low one for valves and investment that is called was mentioning we had a strong but would be a good opening Latin America as well in surfactants, we grew with our distribution partners.

High single digits mid to high single digits, we grew in institutional cleaning as well.

Alright, Thanks, that's very helpful.

And maybe a little bit more detail on what Youre seeing in Latin America, obviously.

The AG business is dragging there, but I think you mentioned some pricing pressure some share loss related to imported products.

So just curious if you can talk about.

Any actions, you're taking and kind of what the path to better earnings in Latin America surfactants might look like.

Yes, sure Mike, Yes, Youre, absolutely correct as we've shared on prior calls.

Luis E. Rojo: Yeah, you're absolutely correct, as we've shared on prior calls. You know, with the supply chain disruptions in the second half of 2022 and customers looking for security of supply, they, I think, enticed us to imports early in 2023, which caused some of our margin and share issues. But I'm happy to report we are recovering our share in the marketplace, and margins should continue to gradually improve going forward. And Mike, one thing that happened in 2023, and that's why margins are depressing in Latin America, is a competitive situation, but also carrying high-cost raw materials. So, actually, we just flushed out the last high-cost material in January. But that was a big drag for the region in 2023, and that should improve in 2024. All right, perfect.

With the supply chain disruptions in the second half of 2022 and.

Customers were looking for security of supply they I think enticed in imports and early in 2023, which caused some of our margin and.

And share issues, but I'm happy to report we are recovering our share in the marketplace and margins should continue to gradually improve going forward.

Mike One thing that happened in 2023, and that's why margin side the pricing in Latin America is it is a competitive situation, but also carrying.

High cost raw materials saw.

Actually we just close out the last high cost material in January.

But that was a big drag for the region in 2023 and that should improve in 2024.

Alright, perfect and then I guess to.

Luis E. Rojo: And then I'll switch over to the comments you made on the Millsdale facility and the power disruption and operational issues you have there. I think it'd be helpful if there was any way for you to quantify the impact there. But I guess my broader question is, you know, I thought we had gone through some improvements at Millsdale to reduce the potential impact of power disruptions. So maybe just an update on where we are in terms of improving resiliency there. Yeah, let me give you the numbers, and then Scott can also expand on the situation in Millsdale.

Switching over to the comments you made on the <unk> facility and the.

Power disruption and the operational issues you have there.

I think it'd be helpful. If theres any any way for you to quantify the impacts there, but I guess my broader question is.

I felt we had gone through some.

Some improvement.

At Melville to reduce the potential impact of power disruption. So maybe just an update on where were.

Where we are in terms of improving resiliency there.

Got it let me give you the let me give you the numbers on Dennis called can also expand on the situation of the mills out.

Scott Behrens: In the end, Mike, it's a small number vis-a-vis, you know, the EBITDA of this company, so we're projecting probably around $5 million of EBITDA impact in Q1. Again, we are still understanding all the details, doing the final sixes, some extra tolling expenses, so we don't have a precise number now, but it's going to be roughly $5 million of EBITDA impact in Q Yeah, Mike, in terms of, you're correct, this has been a focused area of investment over the last couple of years to improve operational reliability in the winter months. And I can say the site, based on our prior investments over the last two years, is much better able to cope with these power disruptions in the month of January. As I mentioned in my earlier comments, the PA polyol assets were more impacted than the broader site.

At the end might be.

These are small number of vis vis the EBITDA of this company. So we're projecting probably around $5 million of EBITDA impact in Q1 again, we added steel understanding all the all the details are.

Doing the final <unk>.

Some extra tolling expenses. So we don't have a precise number now but he is going to be roughly.

$5 million.

EBITDA impact in Q1.

With these power disruptions.

In the month of January.

As I mentioned in my earlier comments, the PAA polyol assets were more impacted than the broader sites.

Luis E. Rojo: And we obviously have more work and more investment to do to fix the areas within the PA polyol that were disrupted. But overall, I think we're pretty pleased with the resilience we've been able to achieve through investments over the last couple of years. And we're working now in partnership with our external power supplier because that was the driver of this situation. So we need to improve resiliency on that side as well. And I forgot to mention, I think Scott talked a lot about Pennsylvania.

And we have obviously more work and more investment to do too.

Fix the areas within the polyol that were disrupted but overall I think we're pretty pleased with the improved resiliency, we've been able to do through investments over the last couple of years.

And we're working now in partnership with our external power supplier because basketball the brands either.

One of the situations, so we need to improve resiliency on that side as well.

I forgot to mention I think it's got up.

Michael J. Harrison: So the majority of the $5 million will be in the polymer. All right, very helpful. And then the last question for me is more of a high-level question. Just on the 2024 outlook, you call out a number of positive drivers and talk about what is to come, which, you know, I think we all understand that, but maybe just a little bit of additional detail or color about how we should think about the cadence of earnings in 2024. It seems like maybe at some point there should be a meaningful step up or positive inflection point. Just curious if you can maybe help us understand what the timing looks like for that potential inflection.

<unk> talked a lot about <unk>. So the majority of the $5 million will be in the polymers business.

Alright very helpful. And then last question for me is more of a high level question.

Just on the 2020 for outlook.

You call out a number of positive drivers and talk about.

<unk>.

EBITA improvement.

Come which.

I think we all understand that but maybe just a little bit of additional detail or color about how we should think about the cadence of earnings in 2024.

It seems like maybe at some point there should be a meaningful step up or positive inflection point.

Just curious if you could maybe help us understand what the timing looks like on that potential inflection.

Luis E. Rojo: Okay, great question, Mike. And as we mentioned in our prepared remarks, we are still expecting this talking in act to continue in the first half, and we're expecting a revamp of the act business in the second half. And so that's one of our key drivers. Second, I will say the $50 million productivity program has already kicked in, but you are going to have, you know, a gradual ramp-up of that program. So you should expect to deliver more savings in the second half than in the first. And the third thing that I would say, of course, Pasadena is one of our key building blocks for the second half and for 2025. And still, starting up the plant is not going to be all positive at the beginning. You need to spend some money.

Great question, Mike cannot sweep as we mentioned in our prepared remarks, we are still expecting destocking enacted to continue in the first half I'm.

Im glad expecting a revamp of the AG business in the second half.

So that's one of our key Valuers second I will say the $50 million productivity program already key gain but you are going to have.

I've got alloy or ramp up of that program. So you should expect to deliver more savings in the second half that in the than in the first half and the third thing that I would say of course Pasadena is one of our key building blocks for the second half and for 2025 still.

Starting up the plant is not going to be all positive at the beginning you need to spend some money.

Scott Behrens: But those are the three big building blocks that we see. And of course, I mean, you know that we have a seasonality effect on the polymers business, where typically, Q2 and Q3 are stronger with all the construction activities. So that skew there means that it will be done more in the second half.

And but those are the three big building blocks that we see and.

And of course, I mean, you know that we have the seasonality effect on the polymers business, where typically Q2 and Q3.

Alex stronger with all the construction activity so that that.

That that skew the earnings the EBITDA in the second half and Mike I would also this pointed out the underlying core business outside of those specific.

The initiatives that we just went through has demonstrated sequential growth in Q4, so distribution ini Palomar.

<unk> that will continue to should continue to incrementally grow.

Through the quarters going forward, but really the second half of the year is what our new assets come online in passive data and as Louis said, that's why the Ags Destocking is exposed to.

Right.

All right very helpful. Thanks, very much.

Operator: Thank you. One moment for our next question. Our next question comes from Vincent Anderson. Steve, hold your lines now. Yeah, thanks. Good morning, everyone.

Thank you one moment for our next question.

Yeah.

Our next question comes from Vincent Anderson with Stifel. Your line is now open.

Yes, thanks, good morning, everyone.

Vincent Alwardt Anderson: I wanted to follow up on a couple of Mike's questions. I think first and foremost, I was hoping to get some more context on agriculture, but really more your confidence in, you know, a second half recovery given we're still seeing a lot of pressure in Brazil on both the safrinha corn acres and then just overall farmer finances. Yeah. So, Vincent, the good news is the macro trend is there. And if you've been reading some of the downstream agricultural companies, you know, the demand in the field remains, right? So, this truly is a destocking activity that we're going through right now. I think, and from what we've read and talked to our customers, you know, the second half is when we should start to see improved volumes. Now, the rate of that ramp up and the geographical cadence of how that happens, I do think you're right. Brazil could probably be the slowest to recover or work through that destocking.

I wanted to follow up on a hey, good morning.

I wanted to follow up on a couple of Mike's questions I think first and foremost I was hoping to get some more context on.

Agriculture, but really more your confidence in a second half recovery given we're still seeing a lot of pressure in Brazil.

On both the Supreme to corn acres, and then just overall farmer financial position.

Yes, so Vincent the good news is the macro trend is there and if you've been reading some of the downstream agricultural companies.

The demand in the field remains right. So this truly is a destocking.

Activity that we're going through right now.

I think.

What we have read in his talk to with our customers. The second half is when we should start to see the improved volumes.

Right of that ramp up and the geographical.

Cadence of how that happens I do think youre right, Brazil could be.

Probably the slowest to recover and work through that Destocking, but.

Our AG business is global in nature, North America, Europe, and Asia, all important for US. So we have we have good anticipation that we will start to see those volumes recover in the second half.

And this is in line with the feedback that we're getting from our customers. I mean, this is a 100% in language therefore gas.

Vincent Alwardt Anderson: Okay, no, it's good to know. I just called out Brazil because I think you pointed to that as a specific area of pressure recently, but now that that's all accounted for, that all tracks. And then kind of going back to the Latin American business, I think you kind of framed it as, you know, imports were incentivized by supply chain disruptions. But, you know, if I recall correctly, those were, you know, Chinese imports. They can be tough to compete with once they kind of get a toehold in.

Okay no that's good to know.

I just called out Brazil, because I think you pointed to that as a specific area of pressure recently, but now that that all tracks.

And then kind of going back to the Latin American business, I think you've kind of framed it as imports were incentivized by supply chain disruptions, but.

If I recall those were Chinese imports that can be tough to compete with once they kind of get get a toe hold and so are you.

Vincent Alwardt Anderson: So are you comfortable with where you're running those assets from a margin perspective right now, or, you know, if the imports don't play nice, let's say. Is there more room for you to compete? You know, being a domestic supplier, or is this something that you're going to have to continue to monitor? pretty cool. No, I think we feel pretty good, Vincent.

Comfortable with where you are running those assets from a margin perspective.

<unk> now or.

If the imports don't.

Play nice, let's say.

Is there more room for you to compete.

Being a domestic supplier or is this something that youre going to have to continue to monitor pretty pretty closely.

No.

We feel pretty good Vincent as Luis mentioned.

Scott Behrens: As Luis mentioned, with that inventory hangover in the first half of last year, we were chewing through high-cost raw materials, which really impacted margins as we competed in the domestic market down there. But all things equal, our customers prefer to buy from local suppliers. And when raw material valuations are matching where market pricing is, I think we're going to win that game. And I think our Q4, where we reported double-digit volume growth, is demonstrating that. And we expect that to continue, quite frankly.

With that inventory hangover in the first half of last year, we were chewing chewing through high cost raw materials, which really impacted margins as we competed in.

Mastic market down there, but all things equal.

Our customers prefer to buy from local suppliers.

And when raw material valuations are matching where market pricing is I think we're going to win win that game and I think our Q4, where we reported double digit volume growth is is demonstrating that and we expect that to continue quite frankly.

Vincent Alwardt Anderson: But yes, margins can always improve. We're not happy or pleased with where the margins are currently at in Q4, but we expect those to continue to improve as we go forward. Excellent. Good to hear. And then I've just got two really quick ones.

But yes margins can always improve we're not.

Happier pleased with where the margins are currently at in Q4, but we expect those two to continue to improve as we go.

As we go forward.

Excellent good to hear and then I've just got two really quick ones.

Scott Behrens: You mentioned the biocide business being a little bit of a headwind. Does that just continue destocking? Or is there maybe some customer concentration on that, on that portfolio that's creating a one-off headwind? Yeah, it was really customer concentration and just rolling off some of the COVID types of activity and business that came off in Q4 of 2022. Okay, thanks. And then last one, is there anything remarkable to report on the kind of annual polyol negotiations this year? No, I have nothing new to report now. There is nothing new to report now.

You mentioned, the bioscience business being a bit of a headwind does that just continued destocking or is there maybe some customer concentration on that on that portfolio, that's creating one off headwind.

Yes, it was really customer concentration and just.

Rolling off some of the.

Covid types of activity and business.

That came off in Q4 of 2022.

Okay.

And then last one is just anything remarkable to report on the kind of annual polyol negotiations this year.

No.

Report now firm.

Nothing new to report now.

Scott Behrens: Vincent, you know, it's a very competitive business. We are good margin stewards in the marketplace. And we will continue to protect volumes and margins. All right, that's all for me. Thanks, guys. Thank you. One moment for our next question. Our next question comes from David Silver with C.L.

<unk> <unk>.

Vincent you know, it's a very competitive business.

We are a good marketing of stores in the marketplace.

We will continue we will continue protecting volumes on marketing.

Alright, that's all from me thanks, guys.

Thank you one moment for our next question.

Our next question comes from.

David Silver with CL King <unk> Associates. Your line is now open.

Operator: King & Associates, your line is now open. Thanks for watching. Bye.

Okay.

Yes, hi, good morning, Thank you David.

David Silver: Yeah. Hi. Good morning.

David Silver: Thank you. Morning. Um, couple of things. I don't think this was asked. If it is, if it has been, I apologize.

Morning.

Couple of things.

I don't think this was asked if it is if it has been I apologize.

But.

During the quarter, you called out or.

David Silver: But during the quarter, you called out, or in your remarks and in the release, growth on the rigid polyol side was called out, and you know double-digit growth in all regions, etc., and I'm just wondering if you could go back and maybe kind of speak to that just a little bit. In other words, In my opinion, I mean, that's more construction and durable goods related, industries that have not necessarily been the strongest lately. And I believe he called out North America and Europe, you know, where maybe the UK is just indicating that they're in a technical recession, and the German market hasn't been especially robust.

In your remarks and in the.

Release.

Growth on the rigid polyol side was called out.

Double digit growth all regions et cetera.

And I'm just wondering if you could go back and maybe kind of speak to that just a little bit in other words.

Alright and my.

Opinion, I mean, thats more construction and durable goods related like industries that have not necessarily been the strongest lately and I believe you called out North America and.

Europe.

Where maybe the UK has just indicated there in a technical recession.

The German market Hasnt been especially robust.

Luis E. Rojo: So, you know, you called out volume growth; you called out higher margins, I believe, or per unit margins. So what is, in your opinion, driving that growth? Is this this the share gain situation, or? What type of drivers should we be thinking about for that portion of your polymer? A good question, David. What I would say is to remember that this talking for this particular business started in Q4 2022. So what you have, you have the effect of not being stopped in impact.

You called out the volume growth you called out higher margins I believe are per unit margins.

What is what is in your opinion driving that growth is this is this a share gain situation or.

What type of drivers should we be thinking about for that portion of your polymers business.

Good question, David what I will say is remember that this stocking up for this particular business that started in Q4 2022.

So what you have you have the FX.

Not destocking impact and Thats why youll see the 12% and what are your thoughts there are still a lot of growth opportunity for the market for the market with all the construction of DVD that needs to happen on with all the re roofing that needs to happen in the U S. If you look at the pipeline and the backlog.

Luis E. Rojo: And that's why you see the 12% in rigid bodies. There are still a lot of growth opportunities for the market, with all the construction activity that needs to happen, and with all the re-roofing that needs to happen in the US. If you look at the pipeline and the backlog of projects for re-roofing in North America, it's still pretty strong, and that should provide market growth for the next three to five years. So there is still, this is not like we're at a peak and we're good. This is just a reflection of not stopping.

Of Prado, a project on re roofing in North America is still pretty strong.

That should provide market good old for the next three to five years. So there is a steel.

This is not like letting a peek on what a good. This is just a reflection of more destocking.

Luis E. Rojo: And what we believe, and what our customers are also saying, is that re-roofing and construction activity, there is still plenty of opportunity for energy conservation, with all of that. This industry should be healthy for the next few years. Okay, great.

And what we believe on what our customers are also saying is.

<unk> roofing in construction activity, there is still plenty of opportunity.

Energy conservation with all of that this industry should be healthy for the next few years.

Okay.

Scott Behrens: I was hoping to change the subject to your CapEx budget for fiscal year 2024. You know, the midpoint of your range is almost exactly half of what was spent in 2023. You know, if I was just to take the midpoint of maybe 130, I was hoping you could maybe talk about that in terms of how much of that is what you might consider sustaining and, more to the point for the non-sustaining, for the discretionary portion of the 130 million or so. Could you just kind of highlight, you know, where the discretionary capex is being directed? So, in other words, I'm guessing 1,4-dioxane and anything remaining with Pasadena is in there. But also wondering, you know, do rigid polyols need some incremental capacity there?

Okay great.

I was hoping to.

Changing subject to your <unk>.

Capex budget for fiscal year 2024, or so.

The midpoint of your range is almost exactly half of what was spent in 2023.

If I was just to take the midpoint of maybe 130.

Could you just kind of highlight.

Where the discretionary capex is being directed so in other words.

One four dioxane than anything remaining with Pat.

Pasadena is in there but.

Also wondering does rigid polyol need some incremental capacity there or.

Scott Behrens: Or where else should we be looking for, you know, where the discretionary portion of your capex budget for 2024 is being directed? Thank you. Yeah, David, this is Scott.

Where else.

Should we be looking for.

Where the discretionary portion of your Capex budget for 2024 is being directed.

<unk>.

Yeah, David This is Scott.

Scott Behrens: Yeah, no, you're spot on, and the $130 million is inclusive of us finishing the final touches on the Pasadena and the 1,4-dioxane investments. Definitely the minority portion of that $130 million. In terms of other discretionary spends, I would call them incremental opportunities where we may be modifying reactor sets to produce or execute on customer-specific opportunities or certain product line extensions. I would not characterize anything in that $130 outside of Pasadena and 1,4-dioxane as a significant discretionary spend, and it's important for us to get these new assets fully up and running and start generating returns against them, right? So consider it a pause in 2024 for any new major incremental capital discretionary projects, and I'll leave it at that. Okay, thank you.

Yeah, no you're spot on.

$130 million is.

Is inclusive of us, finishing the last final touches on the Pasadena in the 104 to Akshay and investments.

Definitely the minority portion of that $130 million in terms of other discretionary spend I would call them incremental opportunities, where we may be modifying reactor sets too.

Produce or execute on this customer specific opportunities or certain product line extensions I would not characterize anything in that 130 outside of Pasadena, and 104 dioxane as significant discretionary.

Larry spend.

It is important for us to get these new assets fully up and running and start generating returns against the right. So considered a pause in 2024 for any new major incremental capital discretionary projects.

And I'll leave it at that.

Okay.

Scott Behrens: Luis, I did want to ask about the debt structure, and if you could just remind me of your total debt that you have at the end of the year here, you know, north of half a billion, if you could just remind me, how much of that would you consider variable in terms of either, you know, fixed rate or something that's been locked in with derivatives where, you know, your interest costs are highly predictable? And then what is the balance that might be subject to? Fluctantions in short-term, you know, base rates or indices.

Thank you for that.

Luis I did want to ask about the debt structure and if you could just remind me of your.

The total debt that you have at the end of the year here.

Half a billion dollars.

You can just remind me how much of that would you consider variable in terms of either.

Fixed rate or something thats been locked in with derivatives, where your interest costs are highly predictable and then what is the balance that might be subject to.

Fluctuations in short term phase III.

Luis E. Rojo: Good question, David. Look, as you saw, $654 million in gross debt, $500 million in net debt when you include the $130 million that we have in cash. And if you think about our debt, the majority is fixed, and it's, I would say, 65% or 70% of that. And, you know, we fixed a lot of debt during COVID at a very attractive interest rate, so below 3%. And we also did some derivatives for $100 million, also hedging below 3%. So the majority fixed at a very attractive rate. Okay, great.

Indices.

Good question David.

You saw $654 million and gross debt 500 million on five.

Our 2014 net bad when you include the 130 that we have from cash and if you think about our debt. They might your OTT is fix and Aesop I won't say, 65%, 70% of that and we fixed a lot of bad during COVID-19 and a very attractive interest rates below 3% and we also.

Did somebody about the $400 million.

Also hedging below 3%. So the majority is fixed at a very attractive rate.

Okay, Great and then last one.

Luis E. Rojo: And then last one, if I could, but I was hoping to just get a tiny bit more color on the workplace productivity programs that are the biggest part, I guess, of the $50 million cost reduction program. So, you know, there was some a start to it here, but, You know, you do have kind of a growing global network here. And I'm just kind of scratching my head. And I'm wondering if you could qualitatively maybe just point out one or two areas where you see the most opportunity to get from where you are now to the 50 million, I guess, run rate in cost reductions over the next year. Thank you. Good question, David.

If I could but I was hoping to just get a tiny bit more color on the workplace productivity.

Programs that are the biggest part I guess of the $50 million cost reduction program.

No.

Yes, there were some start to adhere but.

You do have kind of.

Growing global network here and I'm, just kind of scratching my head and I'm wondering if you could qualitatively, maybe just point out one or two areas.

Where you see.

The most opportunity to get from where you are now to the $50 million I guess run rate in cost reductions over the next year or two thank you.

Good question, David look the majority of the $50 million coming from the operational side right.

Luis E. Rojo: Look, the majority of the $50 million comes from the operational side, right? For example, logistics. The team is doing a great job of reducing our logistics costs. And, of course, the market is in favor of that. So our logistic cost is going down by 25, 30, a procurement savings on raw materials, improving the operations in the whole supply chain in our plans to reduce efficiencies that we have. So 70%, roughly 70% of the $50 million is on the operation side, and then only 30% is the workforce productivity that we have already executed. This was already the program that we announced last year with the early retirement program, and some we adopted before.

For example.

Logistic that team is doing a great job on reducing our logistic golf I mean of course the market is.

Is in favor of that our logistic cost is going down 25, 30%.

Our procurement savings on raw materials.

Proving the operations in the whole supply chain.

<unk> seen efficiencies that we have so 70% roughly 70% of the $50 million is on the operations side.

Then only 30% is the workforce productivity that we already executed.

This was already the program that we announced last year with the early retirement program.

And some reductions in force so so that the other 30%.

Luis E. Rojo: So, that's the other 30%. Okay, thank you very much. I'll get back in. Thank you. As a reminder, to ask a question, please press star 1-1 on your telephone and then wait for your name to be announced. Again, to withdraw your question, please press star 1-1 a second time. We'll move for our next question, which comes from Dave Storms with Stonegate. Your line is now open, more. Gordon.

Okay.

Yes.

Okay. Thank you very much I'll get back in queue I appreciate it.

Thank you.

As a reminder to ask a question. Please press star one one on your telephone.

And then wait for your name to be announced.

Again to withdraw your question. Please press star one one.

Second time.

One moment for our next question.

Our next question comes from Dave storms with Stonegate. Your line is now open.

Good morning.

Dave Storms: I was wondering if I could ask about kind of what you're seeing upstream from a raw material standpoint, both from a cost and how you expect that. Good question, Dave. And look, when you think about raw material prices and pricing, I think we're in a pretty good position. As you saw in Q4, despite our sales being down 15%, our cost of goods sold is down 17%. So we basically almost hold gross margin, flattish $66, $67 million, despite the 15% drop in sales. And you see oil is relatively stable now, right, in the 70 to 80 range. And what we have seen is our raw material prices have stabilized. There are a few pockets where they are still coming down a little bit, but the 80 for the 20 is stable.

Got it.

Just wondering if I could ask about.

Kind of what you're seeing upstream from a raw materials standpoint.

Our cost and sourcing lines and how you expect that might change over the next coming quarters.

Good question, Dave I know, Luke when you think about raw material prices and pricing.

I think running a pretty good position as you saw Q4 <unk>.

Our sales down 15% our cost of goods sold is down 17%. So we basically almost whole gross margin flattish.

66 $67 million, despite a 15% drop in Intel saw and you'll see oil now relatively stable right in the 70 to 80 range and while we have seen is our raw material prices have stabilized.

A few pockets where that is still coming down a little bit, but the 84, the 'twenty is a stable and disease.

Luis E. Rojo: And this is why we are catching up on the margin. Yeah, and I would just say, you know, overall capacity in the chemical industry is much lower than it was 12 months ago, 18 months ago, right? So there's greater optionality and opportunity to really work on your raw material costs in the current situation, very helpful, thank you. And then also.

And this is why we are we are catching up on the margin side.

Yeah, and I would just say overall capacity in the chemical industry as much looser than it was 12 months ago 18 months ago right. So there.

Theres, greater optionality and opportunity to really work on the raw material costs in the current environment.

Very helpful. Thank you and then just also.

Scott Behrens: What's the customer acquisition environment looking like? And Ed Sheeran, well, continue to defend your market share pretty well. Is there potential to expand into more clients? You know, either tier one. Yeah, so that's obviously a big part of our growth strategy within the surfactant business is to continue to service and sell more Tier 2 and Tier 3 customers. Even last year, in the challenging market we had financially, we grew our net customers within surfactants by over 500 new customers and those who are around the world that truly value our technical service, our formulation expertise, and our broad product line. And that continues in, you know, a difficult, challenging market. So we're very excited that our sales and R&D teams continue to do a great job bringing new customers into the company. And then, just one more quick clarifying question. Luis, I think you mentioned earlier that you were with that, or did I include a polymer? Yeah, it's both.

What's the customer acquisition environment looking like it sounds like you defend your market share pretty well and continue to defend your market share pretty well.

Is there potential to expand into more.

Clients are either tier ones through threes.

Yes, so that's obviously a big part of our growth strategy within the surfactant business is to continue to.

Service and sell.

More tier two and tier three customers.

Even last year in the.

The challenging market, we had financially.

We grew our net customers within surfactants by over 500, new customers.

And those are around the world that.

That truly.

Value, our technical service, our formulation expertise and our broad product line and that continues in a difficult.

<unk> market. So we're very excited that.

That our sales and R&D teams continue to do a great job, bringing new customers into the company.

Perfect and then just one more quick clarifying questions. Luis I think you mentioned earlier that you were through most of the high cost inventory was that specific to surfactants inventory or does that include <unk>.

Luis E. Rojo: It's the three businesses, sorry. It's the three businesses that are very helpful. Thank you very much for taking the time. Thank you, Dave. Thank you. I'm showing no further questions at this time. I would now like to turn it back to Scott Behrens for closing remarks. Thank you very much for joining us on today's call. We appreciate your interest in ownership and step in the company, and please have a great day. This concludes today's conference call. Thank you for participating. You may now disconnect.

Polymer and specialty.

Yeah. It's both it's the three businesses is that pretty visible.

Perfect very helpful. Thank you very much for taking my questions.

Thank you Dave.

Thank you.

Showing no further questions at this time I would now like to turn it back to Scott Burrows for closing remarks.

Thank you very much for joining us on today's call. We appreciate your interest and ownership in Stepan company and please have a great day.

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

Q4 2023 Stepan Co Earnings Call

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