Atmus Filtration Technologies Inc. (NYSE:ATMU) Q2 2024 Earnings Call Transcript

Atmus Filtration Technologies Inc. (NYSE:ATMU) Q2 2024 Earnings Call Transcript August 2, 2024

Atmus Filtration Technologies Inc. beats earnings expectations. Reported EPS is $0.71, expectations were $0.58.

Operator: Thank you for standing by. And at this time, I would like to welcome everyone to today’s Atmus Filtration Technologies Second Quarter 2024 Earnings Call. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks, there will be a question-and-answer session. [Operator Instructions] Thank you. I would now like to turn the call over to Todd Chirillo, Executive Director of Investor Relations. Todd, please go ahead.

Todd Chirillo: Thank you, operator. Good morning, everyone, and welcome to the Atmus Filtration Technologies second quarter 2024 earnings call. On the call today, we have Steph Disher, Chief Executive Officer, and Jack Kienzler, Chief Financial Officer. Certain information presented today will be forward looking and involve risks and uncertainties that could materially affect expected results. Please refer to our slides on our website for the disclosure of the risks that could affect our results and for a reconciliation of any non-GAAP measures referred to on our call. For additional information, please see our SEC filings and the Investor Relations pages available on our website at atmus.com. Now, I’ll turn the call over to Steph.

Steph Disher: Thank you, Todd, and good morning, everyone. Our team delivered another strong quarter of performance even as we see softness in many of our global end markets. On the call today, I will provide an update on our performance in the quarter, an update to our outlook for the year and provide some insights on our growth strategy. Jack will then provide additional details regarding our financial performance. During the second quarter, we reached a significant milestone of one year as a publicly-listed company. Whilst this is an important milestone, more important is our sustained strong performance over the last 12 months. I want to take an opportunity to thank all our global employees for their hard work and dedication to deliver consistently.

This has positioned us to recently announce our first quarterly dividend and a share repurchase program. Capital return to shareholders is an important part of our ongoing commitment to strengthen total shareholder value. Now let’s turn to second quarter financial results and our updated outlook for 2024. We delivered strong financial performance in the second quarter. Sales were $433 million compared to $414 million during the same period last year, an increase of approximately 5%. Adjusted EBITDA in the second quarter was $93 million or 21.4% compared to $80 million or 19.3% in the prior period. Adjusted EBITDA for the quarter excludes $4 million of onetime standalone costs and $9 million for the same period last year. Adjusted earnings per share was $0.71 in the second quarter of 2024 and adjusted free cash flow was $34 million.

Adjusted free cash flow includes $23 million of onetime separation related items. Now let me provide some insight into our global markets. Beginning first with the aftermarket. Softer freight activity continued during the second quarter and we have yet to see a positive inflection. However, our strong performance is offsetting some of the market weakness and contributing to volume growth. Demand in the US for fit markets is beginning to slow as expected. In India, markets remain strong, while China remains sluggish. Looking ahead to our outlook, I will start with aftermarket for both on-highway and off-highway, which represents approximately 80% of our global revenues. It is challenging to predict the timing of an aftermarket recovery. We establish our outlook for the aftermarket by considering a number of factors, including third-party metrics and input from our global customers across the value chain.

Compared to the prior year, we are expecting our overall global aftermarket revenue to be in a range of flat to up 5%. At a high level, this guidance reflects a declining market with strong market share performance and positive tailwinds from destocking, which occurred in 2023 and is not repeated in 2024. Let me provide some further detail regarding the assumptions underpinning this guidance. We expect our global markets for aftermarket to be down in a range of 2% to 4%. We are still experiencing year-over-year declines in freight activity and have not yet seen a positive turning point. Overall freight activity is expected to be weaker through the balance of the year than previously expected. In global off-highway, we are seeing softness across the world in construction, mining and agriculture markets.

Offsetting market softness, we expect our outperformance to continue as we accelerate our growth strategy and continue to win new business. We expect our market outperformance to contribute 2% to aftermarket revenue growth. Adding an additional 2% of revenue growth will be the benefits related to destocking year-over-year. You may recall our customers were destocking from 2Q through 4Q in 2023 as supply chains normalized. Pricing is also expected to provide an additional 1.5% year-over-year increase. Let’s now turn to our first-fit market. In the US, our view of the heavy-duty market is unchanged, while we are seeing modest improvement in the medium-duty markets. We anticipate declines in the second half of 2024 in line with industry expectations.

We are maintaining our outlook for US heavy-duty truck to be down 7% to 12% for the full year. In medium-duty truck, we are raising our guidance to flat to up 5%. Demand for trucks in India is expected to remain strong in both the on-highway and off-highway markets, while in contrast market conditions in China continue to remain at weak levels. We expect new business wins including the fuel filtration business of a global OEM we announced last quarter to partially offset some of the market weakness expected in our first-fit business. Taken altogether, we are raising our revenue guidance to now be in a range of flat to up 3%, compared to the prior year with global sales in an expected range of $1.625 billion to $1.675 billion. We expect continued strong operational performance and the benefits of our first half performance to carry through the year.

We are raising our adjusted EBITDA margin 25 basis points and expect to deliver adjusted EBITDA margins of 18.5% to 19.5%. We are also raising our adjusted EPS outlook and now expect to be in a range of $2.15 to $2.40. Now I would like to turn to the capital return to shareholders we announced in July. We are pleased to announce this comprehensive capital return program as part of our ongoing commitment to strengthen total shareholder value. The strong cash generation ability of our business allows us to deliver high-quality solutions to our customers, invest in strategic growth initiatives, and now return capital to shareholders. We declared our first quarterly dividend of $0.05 a share and announced the authorization of $150 million share repurchase program.

Our priority for capital deployment remains focused on the execution of the four pillars of our growth strategy, for which I will now provide you with an update. Our first pillar is to grow share in first-fit. We continue to win with the winners and have secured new vehicle platforms associated with the 2027 US EPA emission standards. We are leaders in fuel filtration and crankcase ventilation. These continued wins further demonstrate our ability to support customers and provide our industry-leading Fleetguard products to solve our customers’ filtration challenges. Our second pillar is focused on accelerating profitable growth in the aftermarket. We are growing our share of the aftermarket by providing our customers with our technology-leading Fleetguard products where and when they need them.

Our teams continue to aggressively pursue new business around the globe, allowing us to expand our share of aftermarket business. We have recently launched our filtration science campaign to raise our brand awareness and demonstrate how Fleetguard products provide industry-leading protection and uptime. Our third pillar is focused on transforming our supply chain. We continue to improve on-shelf availability as we stand up our own fully dedicated distribution facilities. Over 80% of our volume is being distributed through dedicated Atmus warehouse facilities and we are on track to have substantially all of our volumes on the Atmus network by the end of the year. We continue to drive our costs through investments in automation and efficiencies in our purchasing organization.

Our adjusted EBITDA performance demonstrates the results of our continuous focus on cost reduction. At the midpoint of our guidance, we expect to expand adjusted EBITDA margin 340 basis points since the end of 2022 and our supply chain transformation has been a key component of this expansion. Our fourth pillar is to expand into industrial filtration markets. We are primarily focused on growing inorganically, and we continue to build our M&A pipeline and review opportunities. While we are excited about the possibilities industrial filtration will bring to us, we are taking a disciplined approach in evaluating potential targets. Our focus remains on creating long-term shareholder value, and we will move forward with acquisitions when we are confident we can deliver on this value.

We will continue to keep you informed of our progress. Now, Jack will discuss our financial results in more detail.

Jack Kienzler: Thank you, Steph, and good morning, everybody. We delivered another quarter of strong financial performance. Sales were $433 million compared to $414 million during the same period last year, an increase of approximately 5%. The increase in sales was primarily driven by higher volumes of 3% and pricing of approximately 2%. We outperformed in many of our global markets through gains in market share. Gross margin for the second quarter was $132 million dollars, an increase of $18 million compared to the second quarter of 2023. In addition to volumes and pricing, we also benefited from lower commodity costs. Selling, administrative and research expenses for the second quarter were $60 million, an increase of $1 million over the same period in the prior year.

The increase was primarily driven by higher people related and consulting costs as we continue to stand up our own team and separate our functions from Cummins. Joint venture income was $8 million in the second quarter, flat to our 2023 performance. This resulted in adjusted EBITDA in the second quarter of $93 million or 21.4% compared to $80 million or 19.3% in the prior period. Adjusted EBITDA for the quarter excludes $4 million of onetime standalone costs compared to $9 million for the same period last year. We continue to believe these costs will be in a range of $10 million to $20 million in 2024 and be substantially complete by the end of this year. These onetime costs primarily relate to the establishment of functions previously commingled with Cummins, such as information technologies, distribution centers and human resources.

Adjusted earnings per share was $0.71 in the second quarter of 2024, compared to $0.63 last year. The results reflect higher interest expense from a full quarter of debt issued at our IPO in May of 2023. Adjusted free cash flow was $34 million this quarter compared to $35 million in the prior year. The higher cash usage was primarily related to increased working capital requirements. Free cash flow has been adjusted $5 million for capital expenditures related to our separation from Cummins, compared to $2 million in the previous year. We expect onetime capital expenditures will be in a range of $10 million to $20 million in 2024 and also to be substantially complete by the end of this year. As we noted in our last call, we are also adjusting free cash flow for working capital inefficiencies associated with the move from intercompany settlement terms with Cummins to standalone practices.

In the second quarter, this adjustment is $18 million and relates to Cummins processing payroll on our behalf prior to the full separation, and we reimburse them on 60 day terms consistent with historical practices. As we have taken over the payroll process, these cash obligations are funded as incurred. We expect these inefficiencies will be mostly complete by the third quarter of this year and expect a full year impact of approximately $35 million. The effective tax rate for the second quarter of 2024 was 21.8% compared to 24.5% in 2023. The decrease was driven by a change in the mix of earnings between US and foreign operations. Now let’s turn to our balance sheet and the operational flexibility it provides us to execute on our growth strategy and deliver total shareholder value.

We ended the quarter with $161 million of cash on hand. Combined with the full availability of our $400 million revolving credit facility, we have $561 million of available liquidity. Our cash position and continued strong performance during the second quarter of 2024 has resulted in a net debt to adjusted EBITDA ratio of 1.4 times for the trailing 12 months ended June 30th. In closing, I want to thank our dedicated global team for all of their efforts as our momentum accelerates and we execute our growth strategy. Now we will take your questions.

Q&A Session

Operator: Thank you. [Operator Instructions] And it looks like our first question today comes from the line of Joe O’Dea with Wells Fargo. Joe, please go ahead.

Joe O’Dea: Hi, good morning, everyone. Thanks for taking my questions. Clearly, really good EBITDA performance in the quarter. And Jack, it looks like EBITDA was up $12 million sequentially on revenue that was up 6%. So, you talked to price, volume and cost, but could you kind of break that down a little bit more and in particular what you saw on the cost side? And then related, it does look like guide implies that the EBITDA margin doesn’t stay as strong in the back half of the year. So, any bridge details there?

Jack Kienzler: Yes. Maybe I’ll start on the sequential bridge, Joe. Thanks for the question. Good morning. So, I would say, really, as we bridge from the first quarter to the second quarter, it’s really primarily a volume story. Volume was up about $8 million in total revenue, which converted to about a 30 basis point benefit. In addition to that, we also saw some benefits from an absorption standpoint as we had really strong performance across our manufacturing footprints in the second quarter. And as we look towards the back half of the year, we would expect some softening in terms of hours in the plants and production levels. So that’s really what drove. We did have a few other moving pieces. If you recall, we had some headwinds from a freight perspective in the first quarter, which did not repeat in the second quarter, and a little bit of tailwinds from warranty.

But mostly it was a volume story in the plants and just really strong performance in the second quarter and really the first half overall. Maybe I’ll turn it to Steph if you want to talk about kind of the first half-second half story.

Steph Disher: Yeah, I think that’s great. Hi, Joe, good morning. Firstly, as I talked about in my market outlook, I think we see a drop off in the second half relative to the first on volume. And the driver of the margin associated is really very much volume related. So, the two big drivers of the volume decline, second half versus first half, is really firstly the first-fit decline, which we’ve been discussing for some time now and is broadly aligned with previous expectations. But in addition to that, I would say, on the aftermarket side, freight activity, we were expecting to turn positive by now. We’ve been in a long and subdued decline on freight activity, but that turn in the aftermarket or freight activity, we’re now seeing later in the year of 2024 and perhaps early into 2025.

So really, volume drivers leading to a lighter second half relative to first half, that is driving the margin outcomes. I certainly acknowledge that it implies a challenging decremental margin environment. We have certainly delivered strong incrementals, as well — and this still implies a midpoint of 19% adjusted EBITDA in our guide, and that delivers strong incrementals year-over-year is how I’m thinking about it. We are still establishing a standalone company. Obviously, the cost structure that goes with standing up as a separate company and separating activities from Cummins. And we expect to see growth into the horizon, so don’t really expect to be taking short-term cost out if you like. Hence, the decline you see in margins in the second half is really directly related to the volume story.

Joe O’Dea: Got it. Those are helpful details. And then, Steph, wanted to touch on — I think, some really good color related to aftermarket and what you’re seeing in that market. I guess, when we think about the components of growth and think about visibility into the rest of the year and aftermarket for you, I would think that the pricing is in place at this point. The destock is a comp situation. And so, the swing factor seemed like it would more so be related to outperformance and market trends. And so, could you just talk about the visibility that you have into continued outperformance versus the market, and how you think about the variability of the market into the back half of the year?

Steph Disher: So, let me talk about the outperformance. We do feel that we’ve demonstrated outperformance in the first half in share, in aftermarket, and we see that — the way that we’ve assumed in our guide, we believe that will continue here through the second half, and we have strong confidence in that. And so that’s — I’d say that continuing at this trend. I think the variable that is a little more unknown for us is just really when does the freight activity turn. There’s a lot of uncertainty in the market around that. I think it’s certainly a prolonged downturn period that we’re experiencing. And so right now, we’ve assumed that happens into the back half year of 2024. I think there’s just a question of how that plays out. But that — we’ve taken a view that we’re not going to see much recovery of that inside 2024 and we’re going to still see downwards pressure in freight activity and that’s what’s implied in our guide.

Joe O’Dea: Got it. Thanks very much.

Operator: Thanks, Joe. And our next question comes from the line of Tami Zakaria with JPMorgan. Tami, please go ahead.

Tami Zakaria: Hey, good morning. Thank you so much and very nice quarter. So, a couple of questions. Just following up on that aftermarket question from before. So, how much was aftermarket down globally in the first half versus the 2% to 4% decline you expect this year? The genesis of my question is, do you expect the global aftermarket to be worse than the 2% to 4% in the back half?

Steph Disher: Yeah. Good morning, Tami. Great to speak to you, and thanks for the acknowledgment on the strong quarter. I guess, two dynamics playing out here that I would club together. I’d broadly say our downturn on market in the first half in aftermarket was about 2%. We offset that by just under % in destock in the first half. What we’re going to see in the second half is, still strong downturns, so down between that 2% to 4%, at the 3% at the midpoint. And then you’ve got destocking playing a positive role that offsets that slightly more here in the second half. We saw destocking really start to — start with our customers last year in the second quarter, and customers did that at different pacing throughout the year, and it’s spread out through the fourth quarter. So, that’s the two dynamics that play. Similarly, declining market conditions offset by more favorable tailwinds on destock in the second half.

Tami Zakaria: Thank you. That is very helpful. So, the follow-up question is, when I look at the guide, full year revenue guide, to get to the midpoint of the sales guide, the back half needs to be down, call it, about 1% year-over-year, versus the growth that you’ve seen in the first half. So, are you expecting back half to be down year-over-year? Is that the trend you’re seeing quarter-to-date?

Steph Disher: That’s right, Tami. And the big driver of that is the first-fit market decline. So particularly in heavy-duty truck or Class 8 truck, that has certainly been implicit in our guide, but that’s the big driver of the decline year-over-year.

Tami Zakaria: Understood. Okay. Thank you.

Operator: Thanks, Tami. And our next question comes from the line of Rob Mason with Baird. Rob, please go ahead.

Rob Mason: Yes. Again, nice work, Steph and Jack. Maybe to circle back again just to the aftermarket business. So, just so I’m clear, you’ve raised the outlook for the full year in aftermarket, from flat to 2% to flat to up 5%. And again, it sounds like maybe the market conditions are a little bit worse. So, it sounds like share gains are better in your outlook. Could you put a little more color around that in terms of where you’re gaining share, whether it’s domestic or international, whether it leans more on road versus off road, just — or products in particular? Just a little more color there, please.

Steph Disher: Absolutely. Yeah. Good morning, Rob. Certainly — I’d just comment on the overall. I think you’ve crafted it right. We’ve tried to give a more complete picture in our opening comments this time on aftermarket. So I think we may have got ourselves caught up a little bit in the comparisons between the, call, flat to 5% versus the flat to 2%. The flat to 2% really reflected the view of the market story previously only, and now we’ve tried to give them more comprehensive view of aftermarket revenues. So, if you think about a midpoint, we were assuming of market previously of 1%, we’re now saying that it’s between 2% to 4% down, so a midpoint of 3% down. That’s the — that’s what we’ve seen is the sort of decline in market conditions in the aftermarket completely driven by a push out of a positive inflection of freight activity.

So that’s just a link to the market story. We’ve continued to see ongoing share gains in the aftermarket is how I would describe it. Very strong in North America from a geographic perspective is where I would characterize it. Really driven, I would say, by a combination of the activity of improving our distribution network, access to our products. You heard in my opening comments that we’ve been very deliberate on building brand presence with a new campaign on filtration science and how our Fleetguard products protect. And we really think that the combination of these factors are building greater awareness of our product in the aftermarket, coupled with a much stronger distribution capability to be able to service that. It’s how I would broadly characterize those wins.

Rob Mason: That’s very helpful color, Steph. Appreciate that. Just as to my follow-up, could you speak to the expansion of your capital allocation strategy here, I guess, in the near term in terms of how you might be looking at share repurchases versus M&A just, I guess, given what you have may have right in front of you in the M&A pipeline?

Steph Disher: Sure. I was really excited to be able to launch the capital returns program. I know it’s something I’ve been asked about for most of this year as we started out 2024. So, I feel really good about that. As I think about the share repurchase program, this really gives us now the mechanics and the tools to be able to return cash to shareholders as we move forward and balance that against our stated capital allocation priorities of investing in the growth of the business. And, obviously, the flexibility that comes with a share repurchase program alongside M&A is a really good tool for us from our perspective as to how we do that. Look, I think as this plays out, we’ll be able to give more clarity. I think what we can give as clarity here right now is it’s great to have the tools and the mechanism in place to deliver on a share repurchase program.

We’ll obviously balance that against opportunities that we see in the M&A pipeline to give us enough dry powder to be able to act on growth opportunities that will create value for shareholders. So that’s how I’d characterize it right now. As the quarters play out, obviously, we’ll be able to give further color to this, but really pleased to be able to have this mechanism now in place.

Rob Mason: Sure. Thanks, Steph. Appreciate it.

Operator: All right. Thank you, Rob. And our next question comes from the line of Andrew Obin with Bank of America. Andrew, please go ahead.

David Ridley-Lane: Thank you. This is David Ridley-Lane on for Andrew. Could you just maybe give us an update on, your progress in adding independent distributors to the Fleetguard network?

Steph Disher: So, good morning, David. We’ve spoken many times about the strength of our channel to market. We have a particularly strong path to market and channel partners across the US. And then, that positioning differs across the world is what I would say. And so, I think our focus on independent channels and adding those largely has been in more emerging markets like Latin America as an example. And we’ve certainly been aggressive there in identifying new partners, and that has contributed to fueling our growth in that region in particular. And then, I would say, we’re focused very much on other emerging markets as to where we will look to build those independent distributor channels. Certainly, there’s still some opportunities still do that in the US, and we expect to still pursue some of those opportunities here in the second half and beyond. But I would say we’ve got a very strong channel position here in the US that we look to leverage further.

David Ridley-Lane: Thank you. And then maybe a quick one for Jack, just a clarification point. Does the guidance now have 1.5% price for the year or was that just an aftermarket specific comment?

Jack Kienzler: Yeah. So that’s the full year picture, David. Obviously, most of the pricing activities, generally occur in the aftermarket, so that 1.5% heavily weighted towards the aftermarket, and that’s up from approximately 1% at the beginning of the year. So obviously that difference is a very modest pricing action taken for the second half.

David Ridley-Lane: Thank you very much.

Jack Kienzler: Thanks, Andrew.

Operator: Thanks, Andrew. Excuse me, David. And our next question comes from the line of Jerry Revich with Goldman Sachs. Jerry, please go ahead.

Jerry Revich: Yes. Hi. Good morning, everyone.

Jack Kienzler: Good morning, Jerry.

Steph Disher: Good morning.

Jerry Revich: Steph, Jack, hi. On gross margins, just to come back to the quarter, you had a massive step up sequentially this year over 30% gross margins on pretty similar sales, which I think is well ahead of normal seasonality. So, what about the business accelerated 2Q versus 1Q? Is it normalization of costs? Is it new price increases? And then, as I think about that within the context of the back half guide, obviously, you folks have a track record as a public company and have continually beating expectations. So, it does sound like that’s part of the framework for the guide, unless you tell me there was something not recurring in the quarter?

Steph Disher: Well, good morning, Jerry. Thanks for that. I’m going to ask Jack to take the piece on margin step up, and then maybe I’ll circle back on the guide comments.

Jack Kienzler: Yeah, absolutely. So, Jerry, there’s really a few different things at play as I was describing to Joe. So, there is a bit of a volume step up sequentially. There really is no impact from a pricing perspective sequentially from Q1 to Q2. And then, there’s a few bits and pieces of favorability. So, a little bit of favorability from freight, same on materials, same on warranty, all of which taken together contribute to a healthy step up. And then the last piece and probably the biggest piece is just strength in the manufacturing cost environment. That’s both evidence of really strong production. That contributed to the strength of our ability to deliver for our customers over the first half. And you can see a little bit in our elevated inventory balances as well.

As we think about then the — what’s one time, if you will, and — there’s really nothing one time. There’s just a collection of favorability, and then the rest is the volume story from a first half, second half standpoint.

Steph Disher: Yeah. So — and I might just take up this point on the guide and the comments he made. We believe the guide is a prudent guide as we still head into a declining environment here in the second half. Declining on first-fit and Class 8 truck production and not seeing a positive inflection on freight activity, really driving downside in our aftermarket versus our relative guidance — our previous guidance provision — position. So, in terms of the margin performance associated with that, we’ve certainly been discussing that, I would say. And the way I would characterize it, I don’t see a lot of flexibility that I have in the short term to take out fixed cost. Jerry, we’re a brand new company standing up a capable organization, that can deliver on our commitments and while we’re separating from Cummins.

And so certainly no intention to sort of pull out fixed cost here in the short term. And we do see recovery of the markets that we’re talking about and we want to be well positioned to continue to grow through that cycle in a business that is not very cyclical, frankly, like, we’re with a large aftermarket content, and so we really want to be continuing to position our business for long-term growth.

Jerry Revich: Okay, super. I appreciate it. And then, Jack, can we just follow-up on capital deployment policy? One of the big opportunities we’ve discussed over the past couple of years for your business separate from Cummins was to build out the industrial filtration part of the franchise. And given the dividend and the stock buyback authorization, I’m wondering if you can comment on, a, is the M&A pipeline maybe less robust than we thought over the past couple of years, and what does that tell us about the M&A opportunity set over the next 12 to 18 months?

Steph Disher: Thanks for that question. We always viewed that capital returns to shareholders will be part of the mix of our overall shareholder value creation. And so, we always expected to be doing this in time. Feels good to be doing that a year out of the gates with a modest dividend return and the balance of that being a flexible program around share buybacks. Obviously, the world of M&A is opportunistic somewhat and based on the opportunities that present themselves. So, we really wanted the balance of this capital returns to be in share buybacks so that we could balance, capability, from an investment perspective, to be able to invest in M&A opportunities as they presented it. In terms of our progress there, we are making really good progress.

I’d say, building the M&A muscle, the strength of our pipeline, we’ve continued to look at a number of opportunities and worked through diligence processes on those, and we continue to do so. And we will balance out our foresight to M&A opportunity with returns to shareholders. But very much the premises here, we are looking to enter into industrial filtration to grow our business, to increase overall shareholder return. And that’s our driver, and it’s not certainly not growth for growth’s sake. And so, we’re taking — it’s taking time for us to find exactly the right targets there, which is how I would describe it.

Jerry Revich: Appreciate it, Steph and Jack. Thank you.

Operator: All right. Thank you, Jerry. [Operator Instructions] And our next question comes from the line of Bobby Brooks with Northland Capital. Bobby, please go ahead.

Bobby Brooks: Hey, good morning, guys. Thank you for taking my question. Just wanted to kind of double click on the buyback. So, it sounds like the buybacks is more opportunistic than programmatic. Just given your commentary earlier [indiscernible] buyback is maybe the swing factor with how have you leaned into a buyback would be with the M&A opportunities, or am I maybe reading into that too much and then it’s just — it’ll be a mix of both maybe a pro — a base programmatic approach and flex harder or lean harder into it and what M&A looks like?

Steph Disher: Thanks for the question. I think our priority right now was to get a framework in place to be able to return cash to shareholders. And certainly, we’ll look to act on that in — an opportunistic way is a good way to describe it coming out of the gate. And then, I expect us to be able to get a clearer view of exactly what that looks programmatically adding to 2025 and beyond, and we’d be able to share more as we shape that. But I think right now, the way you should hold it, it’s good to have the framework in place. There’ll be a base level that that we look to build as programmatic, that we’ll communicate more on as we go forward. And then there’ll be a balance that is based opportunistic against our M&A options.

Bobby Brooks: Got it. That’s great color. Thank you, Steph. And then, could you just maybe remind us so, obviously, there’s a tailwind in the quarter was lower raw material cost. Could you just remind us what maybe are the three most important raw material costs to the business?

Steph Disher: Okay. Yeah, I’ll hand that to Jack.

Jack Kienzler: Yeah. Absolutely. So, I mean, the biggest, is steel, Bobby. And so, we’ve seen the index bumping along a little bit, but we do expect overall for the year a favorable impact for our business. As a reminder, as you’re kind of tracking the index and thinking about the impact to our financials, there is about three-month lag, so about a quarter lag relative to movement in that index. The next would be, kind of plastics and resin overall, as you think about our, as you think about our products. And then there’s a number of other small categories, if you will, media, packaging, things like that.

Bobby Brooks: Got it. Thank you. Yeah, I’ll turn it over — turn it back to the queue. Congrats on a great quarter, guys.

Jack Kienzler: Thanks, Bobby.

Steph Disher: Thank you. Thanks.

Operator: Thanks, Bobby. And that is all the questions we have today. So, I will now turn the call back over to Todd Chirillo for closing remarks. Todd?

Todd Chirillo: Thank you. That concludes our teleconference for today. Thank you all for participating and your continued interest. As always, the Investor Relations team will be available for your questions after the call. Thank you and have a great day.

Operator: Thanks, Todd. And again, ladies and gentlemen, that concludes today’s call. Thank you all for joining and you may now disconnect.