Ashland Inc. (NYSE:ASH) Q1 2024 Earnings Call Transcript

Ashland Inc. (NYSE:ASH) Q1 2024 Earnings Call Transcript January 31, 2024

Ashland Inc. isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).

Operator: Good day. And welcome to the Ashland Inc. First Quarter 2024 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speakers’ presentation there will be a question-and-answer session. [Operator Instructions] Please be advised that today’s conference is being recorded. I would now like to hand the conference over to your speaker today, Seth Mrozek. Director of Portfolio Strategy. Please go ahead.

Seth Mrozek: Thank you, Abigail. Hello, everyone, and welcome to Ashland’s first quarter fiscal year 2024 earnings conference call and webcast. My name is Seth Mrozek, Director of Portfolio Strategy for Ashland. Joining me on the call today are Guillermo Novo, Ashland’s Chair and Chief Executive Officer; and Kevin Willis, Senior Vice President and Chief Financial Officer. In addition, I want to welcome William Whitaker, Vice President of Finance and Director of Investor Relations. Following this month’s organization changes to Ashland’s finance, strategy, M&A portfolio team. William and I’ll complete the Investor relations transition following this earnings cycle. Ashland released results for the quarter ended December 31, 2023 at approximately 5:00 p.m. Eastern Time, yesterday January 30.

The news release issued last night was furnished to the SEC in a Form 8-K. During today’s call, we will reference slides that are currently being webcast on our website ashland.com under the Investor Relations section. We encourage you to follow along with the webcast during the call. As a reminder during today’s call, we will be making forward-looking statements on several matters, including our financial outlook for our second quarter and full year fiscal year 2024 results. These forward-looking statements are subject to risks and uncertainties that could cause future results or events to differ materially from today’s projections. We believe any such statements are based on reasonable assumptions, but cannot assure that such expectations will be achieved.

Please refer to Slide 2 of the presentation for an explanation of those risks and uncertainties and the limits applicable to forward-looking statements. You can also review our most recent Form 10-K under Item 1A for a comprehensive discussion of the risk factors impacting our business. Please also note that we will be referring to certain actual and projected financial metrics on Ashland on an adjusted basis, which are non-GAAP financial measures. We will refer to these measures as adjusted and present them to supplement your understanding and assessment of the financial performance of our ongoing business. Non-GAAP measures should not be considered a substitute for or superior to financial measures calculated in accordance with GAAP. The most directly comparable GAAP measures, as well as reconciliations of the non-GAAP measures to those GAAP measures are available on our website and in the appendix of today’s slide presentation.

Please turn to Slide 3. Guillermo will begin the call this morning with an overview of Ashland’s performance and results in the first quarter. Next, Kevin will then provide a more detailed review of financial results for the quarter followed by commentary related to Ashland’s outlook for the second quarter and fiscal year 2024. Guillermo will then provide an update related Ashland’s strategic priority and we will then open your line for questions. Now I’d like to turn the call over to Guillermo for his opening remarks. Guillermo?

Guillermo Novo: Thank you, Seth, and hello, everyone. Thank you for your interest in Ashland and for your participation today. First, I want to acknowledge that Ashland will soon recognize 100 years in business. The company has transformed tremendously since 1924. Looking ahead, we anticipate an exciting future built on our portfolio of world-class businesses with innovation driving long-term sustainable growth. Please turn to slide 5. Financial results in the December quarter exceeded our adjusted EBITDA outlook range issued on November 8, 2023, with revenues in line. Overall, sales declined 10% from prior year quarter to $473 million, and reflect market demand dynamics consistent with previously communicated expectations. Demand patterns generally improved as we move through the quarter, and with growing evidence of convergence between Ashland’s sales volume and customer end market demand.

The pockets of lower demand during the quarter were more aligned with specific customer or regional dynamics. With generally reduced stress on supply chains, customer order patterns timing has normalized to pre-COVID levels of less than 30 days. I would note that December sales exceeded our expectations, and although seasonally lower demand months, our sales and order book for January and February are also exceeding our expectations. Pricing in some more competitive segments turn modestly unfavorable compared to the prior year as we comp against our inflation recovery pricing actions in the prior year. Maintaining a pricing margin balance will be critical as we navigate the moderation of costs and increase competitive activity. The Ashland team manage these dynamics very well during the quarter.

The largest impact to our first quarter profitability was absorption related costs versus the prior year quarter as we prudently managed production and inventory levels. While we are cautiously optimistic about the improving demand trends that we’re experiencing in the quarter and into January and February, there’s still heightened uncertainty regarding customer demand normalization. Typically, we would be building inventory for the peak season at this time and currently we are not doing that build. Ashland will remain disciplined in its production levels, targeting produce to near term demand. Production in the first quarter of 2023, exceeded customer demand as evidenced by the inventory build and necessary corrective actions later in the year, creating a difficult year-over-year comparison for the quarter.

This is evident by comparing the sales and production balance volumes versus our prior year quarter. Sales volume and production volumes were down 12% and 24% respectively, or a 2x relative difference. The overall adjusted EBITDA impact of lower operating rates at our plants versus the prior year quarter, totaled $31 million. Primarily impacting our specialty additives and personal care business units. Adjusted EBITDA for the quarter decreased 35% to $70 million, reflecting these dynamics, but were above our expectations for the quarter. In terms of our longer-term priorities, we’re delivering on our strategic priorities to execute, globalize, innovate and acquire, to build resilience and improve performance of the core businesses, as well as drive long-term profitable growth.

We have conviction that our strategy will deliver sustainable, long term, above market growth for the company. Kevin and I will provide a detailed update later on our strategic priorities, but we remain on track and committed to delivering against our strategic and financial goals. We believe the current share price does not reflect our expectations for long-term growth, margin and capital return improvements with reduced performance volatility. We continue to believe our stock is an attractive use of capital as demonstrated by our repurchase of $100 million of shares during the quarter. Our strong balance sheet enabled us to pursue a balanced capital allocation approach investing in our targeted growth strategy in addition to returning capital to our shareholders.

Please turn to slide 6. Sales declined in each of our segments due to the factors that I referenced earlier with the largest relative impact in our specialty additives and intermediates business units. Discipline production was approximately in line with near term demand impacting plant loading, profitability, and improving ongoing pre castle for the quarter. However, we are encouraged by current demand patterns implying a recovery is underway with an expectation of continued momentum into the second half of the fiscal year, narrowing the range of possible demand recovery scenarios. We continue to position the company for more resilient operations across multiple scenarios. While January and February demand improvements are encouraging, March is the critical month for seasonal demand pickup.

We will be tracking March as a more meaningful indicator of demand normalization. We are well positioned for the coming inflection point. Now, let me turn over the call to Kevin to review Q1 in more detail and I’ll come back later to talk about our strategic, progress on our strategic actions. Kevin?

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

In total, Ashland’s adjusted EBITDA for the quarter was $70 million, down 35% from the prior year. Ashland’s adjusted EBITDA margin for the quarter was 14.8%, down from 20.6% in the prior year, reflecting the factors I just discussed. Adjusted EPS, excluding acquisition amortization for the quarter was $0.45, down from $0.97 in the prior year quarter. Ongoing free cash flow improved to $66 million for the quarter, up from a $21 million use of cash in the prior year quarter, primarily reflecting changes in working capital, resulting from our prudent inventory management, as well as reduced incentive compensation payouts. Now, let’s review the results of each of our four operating segments. Please turn to slide 10. Within Life Sciences, normalized global supply of PVP reduced demand in pharma, versus a strong prior year period.

Nutraceuticals has maintained a strong recovery versus a weak prior year period, while sales to nutrition end markets remained challenged. Overall, pricing for Life Sciences was favorable. Life Sciences sales declined by 3% to $200 million, while adjusted EBITDA decreased by 8% to $48 million. Adjusted EBITDA margin decreased to 24%, primarily reflecting negative sales and production volumes, partially offset by favorable pricing. Please turn to slide 11. Weakened demand negatively impacted Personal Care in the quarter, primarily within the skin and oral care segments, partially offset by strengthened hair care. Our Avoca business catering to the fragrance market remains challenged. Overall pricing for Personal Care was favorable. For the quarter, Personal Care sales declined by 7% to $129 million, while adjusted EBITDA declined 31% to $22 million.

Pricing over raw material dynamics were sustained, but margins were negatively impacted by lower sales and production volumes. Please turn to slide 12. Specialty Additives was impacted by reduced demand, though the architectural coating end market continues to be less impacted than others in the business. For the quarter, Specialty Additives sales declined by 15% to $122 million, while adjusted EBITDA declined by 74% to $6 million primarily reflecting production volume and sales declines. Pricing turned negative in the quarter versus the prior year quarter, but was offset by favorable raw materials. Please turn to slide 13. Intermediates reported sales of $33 million down 39% compared to the prior year, driven by lower pricing and volumes. Intermediates reported adjusted EBITDA of $10 million compared to $23 million in the prior year and adjusted EBITDA margin declined to 30.3%, primarily reflecting lower pricing.

Please turn to slide 14. Ashland continues to have a strong financial position following another quarter of robust, ongoing free cash flow generation. As of the end of December, we had cash on hand of approximately $440 million, with total available liquidity of roughly $1 billion. Our net debt was $901 million, which is about 2.1 terms of leverage. We have no floating rate debt outstanding, no long-term debt maturities for the next three years, and all of our outstanding debt is subject to investment grade style credit terms. As Guillermo noted, we continue to believe Ashland stock is an attractive use of capital and deployed $100 million to repurchase 1.2 million shares during the quarter, bringing the total over the last 30 months to $1.05 billion deployed and 11.1 million shares retired.

We have $900 million remaining under the current evergreen share repurchase authorization. We are prudently managing inventory during the period of uncertainty. Inventory levels have decreased $136 million when compared to the prior year quarter and $38 million sequentially which better positions us to produce to demand. Overall, working capital management supported the generation of $66 million of ongoing free cash flow in the quarter delivering the compelling 94% adjusted EBITDA conversions. We are investing in our existing businesses and technology platforms to grow organically and continue to pursue our strategy of enhanced profitable growth through targeted bolt-on opportunities focused on pharma, personal care and coatings. Ashland’s balance sheet is well positioned to continue to give us the flexibility to pursue our targeted growth strategy as we reward our shareholders with a strong dividend policy and continued share repurchases.

With that, I’ll now provide an update on the execute pillar of our strategic priorities in addition to an updated outlook. Please turn to slide 16. A key aspect of our execute strategic priority captures needed portfolio optimization to address underperforming businesses that are not core and where we do not have technology or market leadership. As previously outlined in our fourth quarter 2023 earnings call, we have four primary portfolio actions underway. Divesting our nutraceuticals business, optimizing and consolidating our CMC and MC-industrial businesses, as well as rebalancing our global HEC production network. The nutraceuticals process is underway and going well. Nutraceuticals is a high quality business and continues to reform as evidenced by its recent strong recovery, but outside of our core business and strategy.

The process has gained significant interest from higher value owners, and we expect to sign and close a transaction within this fiscal year. Ashland’s most advanced portfolio action involves optimizing and consolidating our CMC business. We are exiting low margin business and migrating select CMC volumes into Alizay, France, resulting in a closure of CMC production capacity in Hopewell, Virginia during the fiscal second quarter of 2024. This work stream led to $21 million of accelerated depreciation expense during the quarter. Other actions to improve Ashland’s MC-industrial and HEC businesses continue to be assessed and will be communicated in due course. As we take these actions, we will be exploring opportunities to leverage these assets to repurpose and support other strategic priorities.

We continue to expect the portfolio optimization activities to be complete by the end of calendar year 2024. In summary, all portfolio actions are on track and we are committed to act with appropriate urgency to deliver on our commitments, including the reduction of all stranded costs that result from these actions. Please turn to slide 17. As highlighted on the left, our portfolio actions will have a meaningful impact on the company’s profitability, as well as capital and operational efficiency to deliver stronger performance. Specifically, once the actions are fully complete, we expect expanded adjusted EBITDA margins of 200 to 250 basis points and increase to return on net assets of 150 to 200 basis points. A 10% to 15% improvement in network utilization rates and impacted product lines as select SKUs are shifted within the network and a 10% reduction in working capital, as well as capital investment avoidance going forward.

We expect a modest reduction in fiscal year 2024 sales from our portfolio actions, totaling $30 million to $40 million of lower sales related to CMC and industrial MC versus 2023. The impact from a nutraceuticals sale will be dependent on the timing of closing, but the business is averaging quarterly sales of approximately $30 million over the past 12 months. And lastly, we expect no material sales impact from rebalancing our HEC production network in fiscal year 2024. Looking ahead to fiscal year 2025, we expect sales to reduce an additional $130 million to $150 million versus fiscal year ‘24 as a result of the completed portfolio actions with little to no impact on EBITDA. We are committed to eliminating the stranded cost associated with these actions and recapturing lost gross profit, making them EBITDA neutral.

There are approximately $80 million in stranded cost and $20 million of reduced gross profit associated with our actions. The majority of the stranded costs are directly related to manufacturing and will be eliminated after production is consolidated and the lost gross profit will be offset by improved utilization in the plant network. While we are still finalizing the plans and specific cash costs for some of our portfolio actions, we expect the CMC and industrial MC working capital release and capital avoidance to approximately fund the one-time cash cost associated with our plans. Now onto our outlook. Please turn to slide 18. As we look ahead into Q2 and fiscal year 2024, the major question is the timing and magnitude of the demand recovery.

As Guillermo mentioned, current demand patterns imply recovery is underway, with our sales volumes beginning to align with customer end market demand trends. Specifically, January sales are demonstrating a strong month-over-month recovery of approximately 25%, which is roughly in line with January 2023, a period before de-stocking had intensified. In addition, February is shaping up to be a promising month based on order pattern. As Guillermo indicated, March is the lynchpin month of the quarter and will largely define the magnitude of the recovery we are seeing in January and February. While these are clearly positive data points, the critical question is how sustainable is this demand normalization? The current trends suggest a demand recovery occurring in our second quarter with potential momentum heading into our second half of the fiscal year.

We are encouraged by recent demand activity for our products as well as positive economic, consumer, and industry data. The next critical assumption is margin management. Depending on margin recovery, competitive pressures will vary across different segments. Maintaining pricing discipline will be important during our second quarter, but also throughout the year. We do expect pricing pressures to be partially offset by raw material deflation, but the timing will be important as we work through existing inventory. The Ashland team is keenly focused on pricing versus raw material balance for the year, which serves as a risk and an opportunity for overall results. We have committed to produce to demand. We’re much better positioned to do so than our prior year when, in hindsight, production in the first half of the year meaningfully outpaced demand requiring inventory actions later in the year.

We do expect absorption benefits as demand normalizes, which should be much more impactful during the second half of the fiscal year as compared with 2023. That said, we’re continuing to manage production activities to maintain inventory discipline. Taking all of this into account for the fiscal second quarter, the company expects sales in the range of $565 million to $585 million and adjusted EBITDA in the range of $115 million to $125 million. For the full year, we expect sales in the range of $2.15 billion to $2.25 billion and adjusted EBITDA in the range of $460 million to $500 million. Based on recent demand trends, we have removed the downside demand recovery scenario that we discussed on our last earnings call from our range of possible outcomes.

Key risks and opportunities are listed on the slide, but aside from demand recovery, variability in plant loading and price versus raw material balance will be critical for upcoming financial results. And now let me turn the call back to Guillermo to provide an update on our strategic priorities. Guillermo?

Guillermo Novo: Thank you, Kevin, and please turn to slide 20. Our strategic priorities remain unchanged and continue to guide our actions, investments, and profitable growth expectations. The priorities include execute, globalize, innovate, and acquire as we outlined in our Innovation Day during the last earnings call. Each priority is rooted in our passion to win and operate with urgency. Our execute priorities include select portfolio actions. As Kevin shared, we are making good progress on these actions and the resulting impact will strengthen Ashland’s performance. Our Globalize and Innovate priorities are focused on profitable growth. The Ashland team is making progress in both areas. Please turn to slide 21. Activities are underway to globalize four of our higher growth and higher margin business lines, which include two businesses within pharma, are injectables and our film coatings for oral solid dose tablets, as well as two businesses in our personal care businesses.

Biofunctionals and preservatives. Taking a closer look at pharma, the injectable business is making good progress across early, mid and commercial stage pipeline activities. The number of viatel development pipeline projects increased in the quarter, totaling 160 programs. Projects in development are progressing through the evaluation stages. vialtel ultrapure has already realized first commercial sales within two months of launch ahead of expectations. Similarly, the OSD film coatings business successfully secured new customer wins in key geographies and continues to strengthen customer intimacy as we build local support. Shifting to personal care, the Biofunctionals business commissioned a new production facility in Nanjing, China, which I had the pleasure of visiting last week during my China trip.

The ability to innovate and purchase materials locally, produce in country and supply products that are tailored to local preferences is a source of differentiation and advantage in the region. The Preservatives business has established labs around the world to enable the same level of service independent of geography and are focused on developing multifunctional preservatives. All four business lines took steps to accelerate globalization activities and remain hyper focused on implementing their respective business plans. Please turn to slide 22. Innovation is a fundamental component of our growth strategy. We have oriented the company around innovation and are investing in both our existing and new technology platforms. As we shared during the 2023 Innovation Day, Ashland has a rich history of leadership positions within existing technologies.

We’re building the same in our new platforms. As a reminder, the new technology platforms we discussed included our Bioresorbable polymers, our transformed vegetable oils, our novel cellulosics, superwetting agents, liquid cellulose plus, as well as multifunctional starch and pH neutralizers, both of which are launching soon. The new platforms all share similar themes. These technologies are scalable. We are commercializing in several market segments, which increases our overall growth opportunity. They’re tunable. We’re working with customers to tailor the technology to their specific needs. And the technologies have multiple functionalities. They create value beyond a one-for-one drop-in replacements. Multifunction offers the potential to avoid performance trade-offs in our customers’ products.

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

Super wetting agents platform continues to expand as we work to launch within crop care. The development within the pH neutralized platform is advancing with a planned launch later this year. Sales, development, and testing of other new platforms is moving well and we will share updates accordingly in future calls. We’re all excited with the progress made, the continues continued discoveries and the customer feedback. Although, we expect most of the impact of these investments to begin in fiscal year 2025, we will work diligently to accelerate their impact into fiscal year 2024 and provide periodic updates on our progress. Please turn to slide 23. In closing, our approach to this fiscal year is straightforward. Build resilience by focusing on clarity of action in the face of uncertainty.

We recognize that these are challenging times for our industry, but we also recognize the opportunities that lie ahead. Recent demand trends are promising and we are cautiously optimistic. The Ashland team is poised to capitalize on improving market conditions, but will continue with production discipline during this period of uncertainty. We will stay on strategy, maintain operating and capital allocation discipline, and take appropriate actions to maximize fiscal year 2024 performance. This includes optimizing our portfolio, focusing on our core businesses, and perhaps more importantly, continuing to invest in our long-term growth strategy. We are confident in the quality and resilience of the markets we serve and our future. I want to thank the Ashland team once again for their leadership and proactive ownership of their businesses in a very dynamic environment.

Thank you for joining us and operator, Abigail, if we could move to Q&A.

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Q&A Session

Operator: [Operator Instructions] Our first question comes from David Begleiter with Deutsche Bank.

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

Guillermo Novo: We’re seeing it across all the segments. As we said last year, the pharma segments came out of a very strong year, so that’s normalizing a little bit especially on the PVP with some competitors coming back into the market. But the rest of them, we’re seeing it pretty broad based. If I look at December, January and February, December was stronger. We did see some pushback of orders into, it was pushing back just to end of the year things, but even with those pushbacks, December came in stronger and January continued to strengthen. So it is building up. If you look at daily rates, the January and February are sort of maintaining a consistent daily rate. But the question really is going to be March. January and February are good that they’re up versus expectations are more normalized.

But usually the March, April is really when the season starts from a sales perspective. So when we compare it to prior year, our production remained lower, but the sales are clearly picking up. The one area that we’re looking at right now just for clarity is between, within the quarter, I don’t think it’s going to impact Q2 to Q3, but some of the issues in Europe with strikes and shipping, are we going to be able to today ship everything and some things might go into February, but that would just mean a strong February for us. So it’s a pretty broad momentum.

David Begleiter: And just in Q2, do you expect any impact and so how much from inventory control actions?

Guillermo Novo: So we’re going to maintain where we are today. So that is really going to be in our outlook, both for the quarter, but more importantly, I think it’s for the second half of the year. It’s a two to one ratio right now between volume and sales and volume and production. If things pick up and we feel more confident, we’re going to dial in the production, depending on confidence. We now have, we’re back to pre-COVID in terms of visibility. So the issue that we have now is 30 days visibility. We don’t have this order book like last two years, we’ve had 90 days of orders, so it was much easier to see what was happening from our customers. Now we have to really count on our models or forecasting models. Clearly what’s happened, our models statistically aren’t as robust because just the last few years, the last two years, especially last year that we’re down.

So we’re really trying to read into that normalization. The key points that we look at in terms of our demand outlook. One is most of the customers are saying that the destocking is behind. There are obviously maybe specific customers can have a little bit, but in general, the destocking is a bit behind us. Two, that we have three months now of visibility that is improving sequentially and continue to gain strength. And three is just what our customers, if you look at our customers earnings calls right now and their outlooks, it’s projection of volumes being flat for at least the markets that we serve being flat-ish. So if they remain — last year they were flat-ish and we were down. This year they’re going to be flat-ish. We should be getting back to this connection to their own demand.

And that’s sort of the model that we’re using at this point in time.

David Begleiter: So is there a number versus $31 million in Q1 we can use?

Guillermo Novo: We haven’t — the quarter-on-quarter. It’ll be, I mean last year, Kevin and you can comment is we had stronger above sales production in Q1 and Q2. So the situation will flip more in the back end of the year where we took the actions last year. But Kevin, you might want to add more color.

Kevin Willis : Yes, sure. So based on the outlook that we have for Q2 and the full year, our inventory is pretty well positioned right now. We wouldn’t see any need to take significant inventory control actions throughout the balance of the year. So that’s the first thing. I think the second part for Q2 versus last year, we started slowing down, I would say, our production later in the quarter in Q2 in some of our facilities. So year-over-year the guide would imply that we’re kind of flat-ish on the absorption piece of the equation. This Q2 versus last Q2. I mean there could be a little bit of play in that but generally pretty flat-ish overall.

Operator: Our next question comes from Joshua Spector with UBS.

Joshua Spector: Yes, hi. Good morning. I actually want to kind of follow up on a similar point there. So rather than year-on-year, maybe if we talk sequentially second quarter into the third quarter or second half, you expect EBITDA to step up another say $25 million or so per quarter. Is that predicated on your production matching your demand? Or are you making the point that in second half, you might produce more than demand to try to rebuild inventory? So, wondering what needs to happen in your base case for that step up into the second half.

Guillermo Novo: We are not forecasting building inventory. So, usually we build inventory now and then we produce to, demand because we are maxed out in the back end of the year. So, we are still forecasting to demand. If you look at our outlook, the low end is going to be driven more by sales slowing down. The move to the higher end has a much more of a mix of both higher volume sales and we would start to increase production. So the production impacts would be more of the upside drivers as we go into the year. And the other thing that I would say, it also because of the production, which segments recover are important because the upside on the manufacturing has a big impact in things like our specialty additives as an example. So, that recovers, that will also strengthen the mix impact. Kevin, you have any other comments you would add?

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