Celanese Corp - Series A (CE) — Q1 2023 Earnings Call Transcript

Thank you, Darryl. Welcome to the Celanese Corporation first quarter 2023 earnings conference call. My name is Brandon Ayache, Vice President of Investor Relations. And with me today on the call are Lori Ryerkerk, Chairman of the Board and Chief Executive Officer; and Scott Richardson, Chief Financial Officer. Celanese distributed its first quarter earnings release via Business Wire and posted prepared comments on our Investor Relations website yesterday afternoon. As a reminder, we'll discuss non-GAAP financial measures today. You can find definitions of these measures as well as reconciliations to the comparable GAAP measures on our website. Today's presentation will also include forward-looking statements. Please review the cautionary language regarding forward-looking statements, which can be found at the end of both the press release and prepared comments. Form 8-K reports containing all of these materials have also been submitted to the SEC. Since we published our prepared comments yesterday, we'll go ahead and ask you, Darryl to open it up for questions.

First question, Lori, just high level on the full year EPS guide. You're doing about 450 of EPS in the first half, which implies about $7 in the second half. I assume synergies, Clear Lake, a few other things are helping in that back half. So I guess, is there a way to broadly characterize what you're assuming for market demand recovery in the second half versus, say, controllable actions?

Thank you for the question, Mike. You're correct that we need an average lift of about $1 in Q3 and Q4 compared to the first half. Our main focus is on actions we can control. In the M&M sector, we've observed a roughly 10% volume recovery from Q4 to Q1 and again from Q1 to Q2. We anticipate continued recovery in M&M volumes. Our productivity is currently at the higher end across all our business areas, which includes M&M price optimization and synergies that will develop throughout the quarter. We also expect overall demand to improve. In the first quarter, we saw a 10% increase, and we expect another rise in Q2, with better performance projected for the latter half of the year as competition improves in Europe and Asia and as destocking in the U.S. concludes. Additionally, we expect some benefits from moderating raw material and energy costs that should positively impact margins across all our operations, particularly in Emerging Markets. In terms of market outlook by region, we expect modest demand improvement in China for Q2 and the second half of the year, with signs of market recovery, particularly in the automotive sector. Utilization in acetyls is improving, and we hope to reduce costs there. We foresee upward price movements and margin expansion in acetyls. In Europe, we expect continued modest demand growth, which we experienced in Q2 and anticipate will sustain at a slow pace into the second half. As Asia improves, we expect reduced imports from Asia into Europe, which should enhance margins. In the U.S., despite calls for a recession, we aren't observing that in our order books. Regardless of recession definitions, we see a general recovery across many markets. While there was some destocking in Q2, we expect that to largely conclude as we move into the second half. The automotive sector remains strong within the Emerging Markets portfolio, benefiting both our legacy and M&M businesses. We forecast 2023 automotive builds to be 3% to 4% higher than 2022, and we're on a trajectory to achieve that already. Our volume recovery in automotive is outpacing this and is bolstered by our established project pipeline and efforts over the past years, supporting our transition to electric vehicles and increasing content per vehicle. Thus, we believe the automotive market will be robust this year, even with moderate growth in actual production. The construction sector remains slow and is reflected in our projections. However, we note some improvements in Europe and Asia, especially in renovation due to energy efficiency regulations. In the U.S. and China, the commercial construction sector has yet to show recovery. As for non-auto durables, we see growth in electrification, which remains a key global need, although consumer electronics and appliances are lagging behind 2022 levels, particularly in the U.S. Packaging, particularly in the U.S., remains strong, driven by online shopping and demand for sustainable packaging solutions, although paints and coatings are slow, largely due to ties with construction. This overview summarizes our expectations for the second half and the trends that support our confidence in the $11 to $12 range for the year.

Great. That's super helpful. And then maybe second, you talked in the prepared commentary, Lori, a bit about some of the integration actions you're taking in nylon 66 I was just hoping you could expand a bit about how you're currently thinking about your approach to the 66 value chain and just maybe how Celanese going forward might be operating differently than, say, M&M stand-alone nylon polymerization business or just even the legacy Celanese compounding business there?

Yes. So let me talk a little bit about 66 in general, starting with what we're doing immediately around 66. So in the past, Celanese has not been backward integrated in 66. So we were just a purchaser of nylon polymer, which was great when prices were low, not so great when prices were high. With DuPont, we've been able to add the backward integration. What we're doing differently is we've been able to secure a different raw material contract and instead of being forced to produce PA66 polymer we have options. We have flexibility. We have optionality. We can choose to produce backward integrated nylon polymer when it makes sense, we can make less and buy nylon polymers from others, if that makes more sense. We can make less of it if we see the demand profile not supporting higher production rates, and we can make more of it if we see a sudden resurgence of demand. And so that flexibility, which is much more like we run our other businesses like GUR and Palm and even acetyl, gives us a degree of flexibility and ability to make value across a wide range of market conditions that DuPont really didn't have or really didn't exercise. And so we've already done that. We've gotten most of the Celanese nylon grade already certified to start with the DuPont polymer. We've been using DuPont polymer out of inventory, raw home, compounding it to make the Celanese branded products and we've been flexing that to really start managing some of the inventories that had been built last year for both raw and for finished polymers in the DuPont product line. And so that's a degree of flexibility and a way of running the business, which is different. We've also talked about how we're pricing differently pushing price on more differentiated grade lowering prices in some case and more standard grades to really get our inventory in line with the demand profile. And therefore, the cost profile of our inventory in line with the demand profile. So that's kind of the immediate things we're doing. As we think about PA66 longer term, of course, we spent a lot of time studying this before we went into this deal. We know a lot of people are like, well, PA66 is under hood, that's going to decline. We don't see it that way. I mean if we look at electric vehicles as they're coming on the market, we find that the addressable content per vehicle is almost double compared to what we've traditionally have in IPE. And we think a lot of those new opportunities in electric vehicles also extends to PA66 as we see performance requirements increasing for electric vehicles. So longer battery life, higher heat management required. These things are very suited to PA66. So if you think about parts, the PA66 is suited for an EV, things where you replace metal for lightweighting when you need the strength of PA66, things like battery cell frames and in place. The brackets and the mounts for the electric motors and then things in the electrical system like high-voltage connectors, and it's the PA66, standard grades, but also the high temperature and specialty grades, which are particularly applicable here and which we didn't have in our portfolio prior to the acquisition of M&M. And I would say for our legacy EM business, we're about halfway to capturing the addressable content for EVs. Obviously, the M&M business was not as focused there. And so not as far as long, but we are using our project pipeline to also drive these applications of PA66 into EVs now that we have those molecules available to us. And I think if you think about PA66 beyond electric vehicles, there are huge applications there in electrical and electronics which was an area that M&M was really underrepresented in historically. So think about electrification and the need for not just electrification per vehicle, but for everything you think about people wanting to get out of natural gas for homes, but basically, the electrification of everything. All the outlets would say electrification, electricity demand is going to more than double in the next 5 years. So with that comes data management centers, power distribution centers. All of these things require polymer and specifically, all of them can benefit from the availability of PA66. And so we think there's going to be a strong pull-through for PA66 as the demand grows for building out our electrical infrastructure. And again, this is an area Celanese has been in for some years, and now we're able to apply that market knowledge and that end-use knowledge to the PA66 profile and pull those volumes through using the project pipeline model.

I think you reduced your earnings per share goal by dollar. What was the source of a decrease?

Yes. In the first half, our results aligned with our expectations, with the first quarter performing well due to unexpected commercial opportunities in the spot market and some orders pulled forward from the second quarter, particularly in automotive parts and medical implants. However, we do not anticipate those unexpected opportunities to recur in the second quarter. The second quarter has performed slightly lower, and demand has not been building as quickly as we anticipated last quarter. Therefore, the revised outlook of $11 to $12 reflects this slower demand growth we are experiencing in the second quarter, moving into the third, and we have incorporated this into our projections for the second half.

Is it fair to say that as a base case, second quarter volumes and prices are flat sequentially?

I expect the volume for Engineered Materials to increase moderately in the second half, particularly in M&M as we recover market share and experience growing demand in automotive and other end applications. For acetyls, we also anticipate moderate growth into the second quarter as we begin to see more recovery in the end markets. Currently, acetyl pricing is somewhat challenged, but we are noticing early signs of improvement in China asset pricing and margin expansion, though it's very early to tell. While we have incorporated what we've observed so far into our projections, we believe there is potential for further upside. In terms of Engineered Materials, we expect margin expansion in the second half, especially as lower raw material and energy costs from the first half contribute to volume and inventory, aiding margin growth in the latter half of the year.

Thank you. Good morning, everyone. Lori, could you provide us with more details on the demand spike observed in March? Was there a specific theme or region that contributed to this increase? Additionally, do you think this was mainly a pull-forward from the second quarter that positively impacted March?

Let me elaborate on that. In March, we observed significant volume on our books for our core businesses, which boosted our confidence for the second quarter. The unexpected commercial opportunities we encountered towards the end of March exceeded our expectations and contributed to this growth. One of the key factors was an unusual spike in spot demand, particularly for products like Palm and nylon, impacting both of our business areas. Thanks to the flexibility in our supply chain and operations, we managed to capture a large portion of this unforeseen volume. That played a major role in our results. Additionally, we noticed an uptick in orders for certain products in the automotive and medical implant sectors, which was somewhat surprising given our expectation of challenges in medical implants. Some of these orders likely came in earlier than anticipated, pulling demand from the second quarter. In the automotive sector, we also suspect this could be a premature demand signaling better expectations for Q2. It's still uncertain whether this is simply a pull-forward effect or a quicker recovery in demand, but we are treating it as a pull-forward until we can confirm if it's a sustainable trend.

Got it. And then as it relates to the U.S. and your comments on destocking, just a bit more color there in terms of which particular end markets I assume construction is part of that. But just to hear your thoughts. And then just judging by destocking that's occurred in other geographies, including in Europe, what do you think is a reasonable timeline in terms of the destocking event? Is it 2 quarters, 3 quarters? How are you thinking about it now?

Yes. What I would say is we really saw the end of destocking in Europe and Asia for the most part as we moved into the second quarter. What we've really seen destocking continue is in the U.S. And there, auto is pretty robust, I would say, across all of the areas. But I think there, we see destocking continuing in consumer goods and industrial for the most part. And right now, our projection is we think that's going to continue through second quarter, but be pretty much over as we move into the third quarter, and that's some of the uplift we expect to see in the second half.

Lori or maybe Scott, you started the first quarter with negative free cash flow. Can you help us walk into the 1.4? You maintain free cash of 1.4. How does that sort of unfold, do we turn positive in 2Q? Or is it more second half loaded?

Yes. I mean we expect it to be negative just kind of coming off of where Q4 was from a sales perspective and then kind of when we had the interest payment. So as we walk into the second quarter, you've got higher levels of earnings coming through. We also had really abnormally high CapEx from a cash perspective in the quarter as well as cash taxes being higher. That goes away at a higher level. We're at more normalized levels in the balance of the year. With the higher earnings levels coming through now in the balance part of the year, we would expect to be able to kind of get up and average much higher levels as we go forward. That sequential walk from Q1 into Q2 is about a $700 million lift from where we were in the first quarter when you kind of put all those things together.

Got it. Okay. And then I think in your prepared remarks, you said that 50% of the first quarter EPS came in March. So April is at a buck -I'm sorry, March is at back then if you think about April, May, June, it typically is better than March, I think. So what happened, do you think in terms of deceleration into April, May and June, and I thought maybe that dollar could have sustained throughout the quarter.

Yes, Mike, a significant portion of the dollar in March was due to unanticipated opportunities we encountered that month. We haven't seen those same opportunities in April, and we haven't included them as expected occurrences later in the quarter. However, our base level of earnings has been and will continue to grow moderately throughout the months. We're aiming to have a realistic perspective on what is repeatable versus what was fortunate. We're ready to seize similar opportunities again if they arise, but we aren't incorporating that into our forecast.

So it looks like you beat your 1Q M&M EBITDA guidance and 2Q is expected to accelerate. But the prepared comments no longer mentioned that lift to like $700 million to $750 million in EBITDA. Are you walking away from that level? What do you kind of expect M&M can deliver this year for EBITDA?

Thanks, Matt. We're really happy with how the integration is going and the value uplift we're starting to see in the M&M assets. Our concern at this point is the fact that second quarter is not accelerating at the pace that we thought across all of our businesses. And so we're going into the second half at a little lower demand rate than we had originally called out last quarter. So that applies to M&M as well. And so what we're really focused on now, so what I would say is, if that plays out the way we see now, I would say we're kind of at the lower end of that $700 million to $750 million that we called out. And so what we're really trying to get our teams to focus on is making sure we're delivering growth. So that as we get towards the end of the year, we are basically on track for EPS neutral quarter going into 2020, either sometime in the second half or going into 2023, which would be at that kind of $200 million EBITDA range, including synergy. Certainly. We began observing significant energy prices in Europe back in the fourth quarter, and even in the third quarter of last year, which increased palm prices in Europe and created an arbitrage opportunity for palm imports from Asia, particularly from China and Korea, into Europe due to low demand there. As a result, those products found a market in Europe, remaining competitive despite shipping costs. Then, during the COVID resurgence in December and into the first quarter, we continued to see those volumes flowing, even as energy prices in Europe began to fall, since demand in Asia was still weak, allowing for ongoing exports to Europe. In the second quarter, while volumes are still moving, we anticipate that demand in Asia is now rising, meaning those products will return to the Asian market, where prices are currently more competitive compared to Europe. We expect to see stabilizing prices in Europe as we progress through this quarter and into the third quarter.

Two questions, maybe I'll roll into. One here is you seem to pull a lot of levers to basically keep free cash flow in the range that you provided, despite the cut to earnings. Just curious, one, what levers are left if things will play out as you see it? And two, as you look at your guidance, I mean, you're talking about demand improving. I guess does the lower end of your range reflect the scenario where demand doesn't really improve from 2Q levels? Or would that be another cut that we need to consider?

Yes. Let me address your last question first. We believe the lower end of our range is realistic even with just moderate growth. In areas like automotive, we are confident that we will continue to grow at a steady pace this year due to pent-up demand. We are very confident in our $11 forecast, barring a global recession, and our cash flow supports this. However, if an unexpected global recession were to occur, beyond what we are currently anticipating, there are still ways we can manage our cash flow, as we demonstrated during COVID in 2020. In such a scenario, if demand decreases, we could free up more working capital as inventory values drop, allowing us to minimize our inventory levels even further. Additionally, we would implement cost savings by slowing production or even temporarily shutting down plants, which would also help reduce expenses. Overall, we are quite confident in our ability to generate the level of cash flow we have outlined, given the measures we have already planned. Yes, we're anticipating a working capital release from inventory of at least $300 million. Looking at the second quarter, that translates to a $100 million reduction in working capital, which impacts EBITDA by 30 to 35. As we move forward, you can expect this same impact to persist in the second half as we implement further inventory adjustments. Different inventory changes will affect EBIT differently and will depend on pricing trends, but I do expect to see ongoing effects from inventory as we progress through the year.

Yes. And Josh and that's all baked into the guide that we gave.

Lori, would you elaborate on your acetyl outlook in China? If we look at some of the consultant assessments of acetic acid prices they really haven't done a whole lot over the last 2 months or so. But in listening to your commentary, it sounds like maybe there's some upward tension building there. If that's correct, would you attribute that to some of your competitors' outages over the next month or 2? Or do you foresee a more sustained cyclical uplift as the year plays out.

Yes. Thanks for the question, Kevin. So as tills in fourth quarter was definitely sub foundational, and I think we talked about that. I mean we're really essentially at the cost curve and in some periods of time during the quarter and fourth quarter and even into first quarter, even below the cost curve from time to time. So what's happened is if you look at coal pricing in China, coal pricing, why asset pricing has remained at about the same level for the last several months. We've actually seen coal pricing come down from Q4 to Q1, coal pricing came down about 20%. And so you see some uplift in the actual margin. So now we're still very close to the cost curve in terms of margins, but it stabilized a little bit through first quarter. And then some of the turnarounds, which we expected to happen in the first quarter got pushed to second quarter. We're starting to see those turnarounds start. And as that takes capacity out of the system, that further tightens the demand situation we see margins slowly creeping up. And just really in the last 5 days, we've started to see a slow increase in acetic acid pricing which we baked that into our guidance, that small increase that we've seen. But I'd say it's still early. We need to see if that's sustained. But we think there is a chance that is sustained with now the more normal level of outages we expect going forward. I mean the last 6 months have been remarkably stable in the acetic acid world. I mean not a lot of unplanned downtime, not a lot of increases in demand, not a lot of planned downtime. And I think we're going into a more typical period now where we will have occasional outages, both planned and unplanned, which will give us periods of market tightness that we'll be able to take advantage of.

Yes. Thanks, Kevin. If you go back, we had stated a goal of reducing net debt by $1 billion in 2023. With the cash flow that we expect, we'll certainly do that. And when you layer in the Mitsui proceeds on top of that, certainly, we will well exceed that net debt reduction target that we had when we first announced the deal a year ago, of $1 billion. So we feel good about where we finished the year from a net debt perspective. And then given what Lori talked about earlier on where we would expect from an earnings trajectory to exit the year as we drive cleanup of the inventory on the balance sheet and we start expensing much lower cost inventory as we go into the second half and then exit the year, we feel good about the earnings trajectory to get to that 3x target that we had initially stated by the end of 2020.

Yes. In Europe, the main challenge in the competitive landscape has been the influx of imports from Asia. This is impacted by low demand in Asia and the favorable cost position in Asia compared to Europe, especially when energy prices were much higher there. Although energy prices in Europe have significantly decreased, they still remain elevated compared to the rest of the world. We anticipate improvement in this situation, particularly with rising demand in Europe. We have observed this improvement toward the end of the first quarter and expect it to continue into the second quarter and improve further in the latter half of the year. Regarding Steel's competitiveness, the market has been stable and competitive amidst a seasonally low demand for acetyls, influenced by China's holidays and a general decrease in construction activity worldwide, which affects acetyls. As we begin to see a slight recovery in construction in Europe and Asia and return to normal maintenance schedules, we believe there will be an opportunity to gain additional margin in the acetyl market. Our ability to capture market share relies on our commercial model's flexibility to react to spot opportunities, allowing us to maneuver products globally by adjusting our production capabilities. In the first quarter, we capitalized on stronger markets for emulsions and RDP down the line, enhancing our profitability during that period. As asset prices in China start to shift, we will have further opportunities. Ultimately, our focus is on flexibility and the ability to harness any potential upsides in the market at any moment, rather than solely on market share. We are pleased to have completed the mechanical phase and are now entering the commissioning stage, expecting to begin production in the third quarter. With the current lower natural gas prices, our location in Clear Lake stands to benefit significantly. I anticipate that the facility will operate at higher rates, which could lower rates due to global demand. We may reduce our operating rates in China and Singapore while continuing to supply Europe from the U.S. at higher volumes, which is also cost-effective. Although there may be limited opportunistic shipments to Asia in the second half, other factors such as vessel availability and tank capacity could impact this. However, this arbitrage could potentially arise. It's important to note that Clear Lake is now the lowest cost and lowest carbon footprint producer of acetic acid in the world. We expect this to create numerous opportunities for Clear Lake and influence the industry, particularly in facilitating cheaper service for European volumes from the U.S., which may affect the volume flow from Asia to Europe. Yes. The global operating rates for both acetic acid and VAM are still around 90%, occasionally dipping slightly lower, but generally remaining stable. This stability has been somewhat unusual in the industry. For the past six months, companies have adapted to these operating levels while experiencing a decrease in demand due to normal seasonal patterns. At this 90% operating level, we are well-positioned to take advantage of any planned or unplanned downtime that may occur globally in either acetic acid or VAM, as well as in any downstream derivatives. Historically, we have found opportunities during periods of regional or short-term supply and demand imbalances.

I wanted to follow up on that a little bit on the demand side of the equation because one of the issues I’ve been having in our own S&D models here is trying to sort of reconcile what I think the underlying demand number is versus what shipments have been to try to account for. Obviously, we had a lot of issues with unplanned outages over the last few years, but we also had very strong building and construction demand in the acetyl chain. So how do you reconcile that when you sit here today and think about what the actual underlying instant demand is versus shipments and maybe how much shipments might have overstated demand in the past and maybe understating demand now in terms of thinking through what operating rates can look like over the next couple of years.

Yes. Look, it’s been a bit of a confusing time and Frank, I would say. If we look at fourth quarter last year, when prices were very low, we started seeing demand really coming off, particularly in Asia. although operations were fairly stable, we certainly still saw some molecules moving as people anticipated different things. And as we go forward, we also saw a lot of shipment and people carrying higher inventories before that because of all of the supply chain issues that existed around the world, and you call like in the first half of 2022. VAM and emulsions, I mean, there just wasn’t even enough molecules out there to meet the customer demand. And so people were carrying a lot higher inventories when we saw the reduction in demand through the fourth quarter, we saw people really destocking in the fourth quarter. We called that out at the last earnings call. I would say now as we’ve moved through the first quarter and especially March and beyond, we do see demand recovery coming back for fibers for other end users. Construction is still, I’d say, the weak spot, although even in – like in Asia, we’re seeing a little bit of recovery in construction. And in Europe, we’re seeing recovery in construction, not so much in new builds, but in renovation for energy efficiency, where a lot of our downstream derivatives products go. So we are seeing the demand coming back again with a few exceptions. And so that is starting to bring the volumes up. But we’re not really seeing restocking occurring yet as people feel fairly comfortable because we’ve been in such a stable period and haven’t had the supply chain issues. I think customers feel fairly confident they can get the materials they want. As we see demand continue to increase, I expect we’ll see some level of restocking. And with that higher demand, we should see some tightening of pricing and seeing some pricing uplift across all the regions.

You mentioned a $1 increase from the second quarter into the third and fourth quarters. Will that increase be distributed evenly between the two quarters, meaning you expect both the third and fourth quarters to be similar? Or is the third quarter usually stronger seasonally? Additionally, how much of that dollar increase is within your control? I know you are confident in maintaining the $11 level for the entire year. Could you explain the transition from 250 to 350, indicating how much of that increase will come from M&M synergies, how much from volume growth, and how much from internal cost reductions? That information would be very useful.

Sure. I would like to start by discussing the $0.75, which is the lower end of the range and brings us to $11. We are confident that this is within our control, assuming that the markets develop as we expect. With our manageable actions and the stability we've observed in raw materials and energy, we clearly see a path to reaching that $11. To reach the higher end of the range, around $375 a quarter, we would need to see an improvement in demand across the end markets. You're correct that Q3 is typically a bit stronger than Q4, although we don't have much visibility on that at this point. I actually don’t expect much difference this year, even though we usually experience seasonality in Q4. The seasonality trend is observed in the Western Hemisphere, but our acquisition has increased our exposure in Asia, which tends to perform well in Q4. Therefore, I anticipate that Engineered Materials, for instance, will have similar results in both Q3 and Q4. Historically, during recovery periods, we’ve experienced strong Q4s, and as we continue to build synergies throughout the year, our highest synergy numbers will be seen in Q4. So, I expect Q3 and Q4 to be comparable, even though Q3 typically has been stronger. Yes. Look, I think that's a fair starting point. I mean, obviously, we'll have some quarter-to-quarter variation because of seasonality and other things. But assuming a steady demand environment, will continue to get additional benefits from M&M. We've historically grown our own Engineered Materials business in kind of a double-digit range year-on-year. And we will get the further benefits from having Clear Lake online as well as some of the other expansions, including the integration of tow into acetyls which will continue to grow on a year-on-year basis as we move forward. So I think that's not an unreasonable place to start when you're thinking about 2024.

A question around some of the guided to sort of self-help sort of measures to boost EBITDA. I mean earlier, you were talking about being able to attain around $130 million in 2023 worth of M&M synergies as well as slightly north of $140 million from the business overall. So how is that tracking? Are those numbers still sort of attainable, beatable? Where do we stand with that?

Yes. So we had called out before 100 to 135 of M&M synergies. We fully expect to be at the top end of that range. So we are on track for that. In the second quarter, we had about $10 million of synergies from M&M. There's another $10 million or $20 million that will be added to that in the second quarter and continue to build through the year. So we feel very comfortable in achieving that $135 million of M&M synergies this year. We feel very comfortable that we have achieved the uplift from was very obvious in the first quarter, and we also got an additional 10 million to 20 million of uplift in the first quarter from to spot sales, which was part of our model going forward that we wanted to be able. Those will be there every quarter, but I think it shows the value of having integrated it into acetyls and running it in a different way. It gives us more options to capture upside than we've had in the past. So I feel very comfortable with that number on to. I think the other thing is productivity. So we've historically achieved $100 million to $150 million a year of gross productivity. Through the first quarter, we are on track to achieve at or above that top end of that range on productivity. And these are business productivity separate from M&M synergies. So I think when we talk about self-help, we feel like we're really delivering on all of these areas as well as delivering on the volume recovery in M&M, the pricing recovery and all those things that we've laid out relative to the deal. Yes. Look, in Q1, the combined Engineered Materials was about 20%. We expect that to move up across the year really as we lift the EBITDA margins on the M&M business. So by the end of the year, I think we should be more around that 23% range for the year. And I fully expect as we continue to grow M&M as we continue to grow our base business as we continue to high grade the portfolio and realize the value of the synergies that we will move into that more historical level of 25% to 30% EBITDA margins, which is actually about where we've been in the last few years.

Thank you. We'd like to thank everyone for listening in today. As always, we're available after the call for any follow-up questions you may have. Darryl, please go ahead and close up the call.