Element Solutions Inc (NYSE:ESI) Q1 2023 Earnings Call Transcript

Element Solutions Inc (NYSE:ESI) Q1 2023 Earnings Call Transcript April 30, 2023

Operator: Good morning, ladies and gentlemen, and welcome to the Element Solutions Q1 2023 Financial Results Conference Call. Today’s call is being recorded and all lines have been placed on mute to prevent any background noise. After the speakers’ remarks, there will be a question-and-answer session. Thank you. I will now turn the call over to Varun Gokarn, Senior Director of Strategy and Finance. Please go ahead.

Varun Gokarn: Good morning, and thank you for participating in our first quarter 2023 earnings conference call. Joining me are our Executive Chairman, Sir Martin Franklin; CEO, Ben Gliklich; and CFO, Carey Dorman. In accordance with Regulation FD, or Fair Disclosure, we are webcasting this conference call. Any redistribution, retransmission or rebroadcast of this call in any form without the express written consent of Element Solutions is strictly prohibited. During today’s call, we will make certain forward-looking statements that reflect our current views about the company’s future performance and financial results. These statements are based on assumptions and expectations of future events that are subject to risks and uncertainties.

Please refer to our earnings release, supplemental slides and most recent SEC filings for a discussion of material risk factors that could cause actual results to differ from our expectations and predictions. These materials can be found on the company’s website at www.elementsolutionsinc.com in the Investors section under News & Events. Today’s materials also include financial information that has not been prepared in accordance with U.S. GAAP. Please refer to the earnings release and supplemental slides for definitions and reconciliations of these non-GAAP measures to comparable GAAP financial metrics. It is now my pleasure to introduce Element Solutions’ CEO, Ben Gliklich.

Benjamin Gliklich: Thank you, Varun and good morning, everybody. Thank you for joining. In the first quarter, Element Solutions delivered on its financial commitments. We grew adjusted EBITDA sequentially and reported results in line with our guidance, despite continued softness in electronics end markets and Asian economies more broadly. Portfolio diversification and cost containment softened the impact of decline in key end markets like mobile. Our organic sales performance reflects the consumer electronics malaise that began in the middle of last year and has driven broad-based volume declines across the industry. Organic sales were down 7% over the first quarter of 2022. Notably, that quarter was our largest for sales and EBITDA since we launched ESI.

This quarter’s sales results included an 11% decline in the Electronics segment that was partially offset by 2% organic growth in Industrial & Specialty. The I&S segment was buoyed by resilience in Western automotive markets and a solid recovery in offshore energy production. Demand in the Americas and Europe, while soft, is playing out largely as we expected entering the year. However, recovery in China post-COVID reopening and Lunar New Year has been slower than expected. When demand will recover in Asia and in electronics markets remains uncertain, but there are good reasons for second half optimism. Semiconductor customers expect increased utilization rates in late Q2 and into Q3 and related sectors should follow. While only a portion of our electronic sales go into front end of line semiconductor, they are a leading indicator.

There were bright spots in Q1. Our power electronics offerings continued to perform very well as EV production rates accelerated and customer traction for certain new electronics and industrial applications bodes well for outsized growth when markets recover. Our energy solutions business is also growing ahead of our expectations. Commercial and technical execution has been solid. On the cost side, we’re beginning to benefit from a normalization in logistics prices and deflation in certain raw materials, driving a sequential improvement in gross margins that we expect to continue through the remainder of the year. We’re also enforcing tighter control on discretionary spending and driving process efficiencies through our supply chain and in G&A.

This is not coming at the cost of long-term growth. We’re still investing in strategic focus areas and maintaining the resources needed to support the market recovery when it arrives. Given the variable cost nature of our business, we have additional levers to reduce costs in the second half should expected demand not fully materialize. Commercially, our teams remain focused on delivering exceptional products and services. Our customers and technologies support attractive markets such as electric vehicles, 5G-enabled electronics and sustainable chemistry solutions, markets that will grow. We’ve also continued to deploy our capital effectively into high returning investments that we believe will continue to compound per share earnings. Periods of low demand and market uncertainty often generate unique opportunities.

We believe 2023 may be such an environment and expect to exit this year better positioned than when we entered it. Carey will now take you through our first quarter business results in more detail. Carey?

Carey Dorman: Thanks Ben. Good morning, everyone. On slide three, you can see a summary of our first quarter financial results. Organic sales declined 7% year-over-year and constant currency adjusted EBITDA declined 18%. The disproportionate reduction in profitability reflects a tough comparison against last year’s record sales and profit quarter. In Q1 2022, carryover strength in the high end smartphone supply chain contributed significant high margin sales. Those same markets experienced substantially reduced demand in the first quarter of 2023, driving 11% organic sales decline in our electronics business. Our net sales and adjusted EBITDA were also both impacted by a strength in the U.S. dollar by roughly four percentage points.

Our Industrial & Specialty segment grew sales organically 2%, primarily due to improved activity in the offshore energy business and new customer ramp up in graphics, which offset weakness in our industrial surface treatment business in China. Our first quarter adjusted EBITDA of $112 million was 4% higher sequentially as gross margins benefited from improving raw material costs. In constant currency terms, adjusted EBITDA margin declined 150 basis points year-over-year. Electronics segment adjusted EBITDA margin was negatively impacted by volume declines in higher margin circuitry and semiconductor applications, partially offset by reduced pass-through metals prices. Industrial segment margins were negatively impacted by mix. Adjusted EBITDA margins improved sequentially 70 basis points from Q4 2022, reflecting the easing headwinds from higher logistics that we experienced through much of last year as well as nonmetal raw materials and were modestly deflationary.

Significantly lower prices on pass-through metals such as tin and silver were a slight tailwind to margins relative to Q1 2022. Excluding the impact of the $83 million of pass-through metal sales in our assembly solutions business, our adjusted EBITDA margin would have been 23% in the first quarter. On slide four, we show additional detail on the drivers of organic net sales growth in our two segments. In electronics, mobile phone and consumer electronics demand had the most material impact. Our automotive electronics business remains resilient, particularly for electric vehicles. In the first quarter, power electronics continued to grow nicely as production of high-end electric vehicles accelerated. However, overall semiconductor solutions declined 19% organically, reflecting reduced utilization levels of semiconductor fabs.

Assembly declined only 5% as it is less weighted towards mobile and consumer electronics. Circuitry solutions declined 17% organically as persistent smartphone weakness continued from the end of last year. Customers across the mobile supply chain saw meaningfully lower production volumes, while other electronics hardware production also declined. Additionally, we are comparing against a period of particularly strong performance in cloud computing and data storage that benefited our memory disk business early in 2022. We expect demand from both smartphone suppliers and memory disk customers to improve in the second half of 2023. For the first quarter, organic net sales in Industrial & Specialty increased 2% year-over-year. Industrial solutions declined 1% organically as demand in the European construction and industrial markets slowed from the strong levels we saw a year ago, and automotive production in China remains solid.

Overall, our automotive business performed in line with global auto production in the first quarter, which was resilient in the West, but soft in China. Third-party estimates of China auto production recovery have been pushed out and inform a more cautious view on sequential acceleration in this business in the second quarter. Graphics solutions sales increased organically by 9%, reflecting a ramp in new business and pricing, which has only partially offset inflation thus far. Energy solutions were the bright spot, with sales growing 25% organically in the quarter as production and drilling activity has rebounded. We expect continued growth for this business throughout the year. Slide five addresses cash flow and balance sheet. We generated $45 million of free cash flow in the first quarter, including a $13 million investment into working capital, which reflects a seasonal inventory build.

This quarter, we also made our $16 million semiannual cash interest payment on our outstanding senior notes. CapEx in the quarter was $9 million, which is below the annual run rate we expect for this year. This number should ramp as certain growth projects and integration initiatives get off the ground. Turning to the balance sheet. Our net leverage ratio at the end of the quarter was 3.3 times, a slight increase from the end of 2022. In March, we opportunistically extended the maturity date of $360 million or roughly half of our interest rate and cross currency swaps that were previously set to mature in January 2024 to January 2026. We expect this will increase cash interest by roughly $5 million this year, but these actions help mitigate future interest rate risk.

Swap maturities on our term loan are now split evenly over the next three years. And our capital structure is 100% fixed rate until 2024 and more than 80% fixed rate until 2025. We have no debt maturities until 2026 and our liquidity position remains strong. And with that, I will turn it back to Ben.

Benjamin Gliklich: Thanks Carey. While the business in Europe and the Americas has been resilient, we exited the first quarter in a weaker demand environment than was generally anticipated due to Asian and electronics markets. From what we’ve seen to date, we are reluctant to forecast a steep sequential improvement in our end markets in the second quarter. We expect adjusted EBITDA to be approximately $120 million. This sequential improvement assumes a benefit from more selling days and modest sequential gross margin improvement due to ongoing pricing activity, commercial execution and raw material deflation. Our conversations with customers and suppliers still support our expectation of the demand inflection in the second half of the year.

We’ll be growing off a lower baseline, which translates to the low end of our prior $510 million to $530 million full year 2023 guidance range. We still expect to generate roughly $275 million of free cash flow for the full year. Our ability to reduce operating expense and preserve profitability as we’ve demonstrated in prior periods of market weakness remains. However, you should not expect us to present a significant restructuring program. Our primary costs are our people, and they are the key to our moat and the engine for our growth. We’ve invested in a culture, capability and team that are resilient in down markets and have positioned the company to benefit disproportionately from the long-term growth drivers in our markets. We’re conscious and considerate of our spending in all market environments, and this ongoing air pocket of demand does not change how we view the long-term trajectory of our business.

We’re pleased with how the team is executing in this environment, and its ability to focus on key breakthrough strategic objectives, supporting customers and growing our sales pipeline to take advantage of end market acceleration without losing cost discipline in the short term. You should expect that to continue. To wrap up, I would like to thank all of our stakeholders for their continued support, in particular, our talented and dedicated people around the world. With that, operator, please open the line for questions.

Q&A Session

Operator: Your first question comes from the line of Josh Spector with UBS. Your line is open.

Joshua Spector: Yeah. Hey, guys. Thanks for taking my question. I just wanted to ask about kind of how you’re thinking about the cadence here through the rest of the year. So, you talked about levers that could help the cost in the second half. You lowered your EBITDA expectations, but you didn’t lower your range. So, if we get a weaker recovery, do you still think you can get to the low-end of your range with the levers that you have? Or would that be a different scenario than one you’re forecasting?

Benjamin Gliklich: Thanks for the question, Josh. Yeah. So, as we guided in the first quarter, we thought the cadence half-over-half would be something like $240 million of EBITDA in the first half and $280 million in the second half at the midpoint. Obviously, we delivered on our first quarter expectations, but our expectations for the second quarter are dampened by demand. We are communicating today that the ramp we expected in the second half is increasingly likely relative to what we thought a couple of months ago, but the exit velocity coming out of the first quarter is a bit lower. We have retained all of the cost levers that we would have had in a normal year as we enter the second quarter and expect to have them entering the second half as well in case that ramp doesn’t materialize or the magnitude of the ramp is inadequate to deliver on that guidance. So, yeah, we do believe we have ample cost capacity entering the second half to deliver on our guidance.

Joshua Spector: Okay. No. I appreciate that. And I wanted to ask a second. This might be too early to give a deep comment, but there are some headlines circulating around Germany and basically electronic or semi chemicals limitations on shipments into China. Do you have any way to think about the risk there for you or your sales flow in that direction?

Benjamin Gliklich: Yeah. It’s been a dynamic regulatory environment for high-end electronics going on a couple of years now, and we have been nimble to ensure compliance. I’d say that our value at the very leading edge in semiconductor is less than our value into printed circuit boards or assembly materials and the Chinese local market for leading edge semiconductor is smaller than in Taiwan or Korea or North America. So, we don’t see a significant impact should regulatory frameworks change in the semiconductor space. Our small portion of front end of line semiconductor sales has already been subject to these sorts of export control. So, it’s not a big needle mover based on what we can see today. But of course, that’s a dynamic situation.

Joshua Spector: Okay. Thanks Ben.

Operator: Your next question comes from the line of John Roberts with Credit Suisse. Your line is open.

John Roberts: Great. Thank you. SG&A in the quarter was only down a few percent from a year ago in spite of the much weaker start to the year. I assume you’re accruing your compensation in the first quarter to that full year EBITDA target that’s there. And if it doesn’t materialize in the back year in terms of recovery, you would just reverse some of those accruals later in the year?

Benjamin Gliklich: Yeah. So that relates to Josh’s question as well. We are coiling the cost spring as we move along through the year. We have not taken significant actions to reduce costs. I would say, right now, we’re in a cost containment mode, right, being very thoughtful about where we’re adding costs, but we’re not actively reducing expense at the moment. We’re always considerate of what — of our spend, but there’s plenty of opportunity, I would say, entering the second half for us to reduce costs to deliver on our financial commitments should demand not materialize.

John Roberts: And then on slide four, the much lower growth in the assembly business, how different is the China and mobile exposure for assembly relative to the circuitry and semiconductor end markets?

Benjamin Gliklich: Yeah. The assembly business outperformed the circuitry and semi businesses in the first quarter because it’s more broadly exposed to electronics and automotive than the circuitry and semiconductor businesses were skewed towards the high-end. And we saw that in the fourth quarter as well. So, the assembly business has significantly outperformed higher end electronics markets because of its mix, bigger presence in North America, waiting into general automotive. And that’s a trend that we would expect to continue insofar as there’s continued weakness in mobile markets, for example.

John Roberts: Okay. Thank you.

Operator: Your next question comes from the line of Kieran de Brun with Mizuho Securities. Your line is open.

Kieran de Brun: Hey, good morning. I was wondering, just in terms of semiconductor and circuitry, if you can dial in a little bit more on how things have changed in the first quarter versus where your expectations were in 4Q. I think we’ve had a few announcements from some of the big semiconductor players in terms of how they’re planning on running some of their semiconductors and the fab utilization throughout the beginning of the year and into the back half of the year, as well as some revisions in terms of expectations for mobile handsets in the back half of the year. So, in the context of some of the industry commentary, if you could just hover on how your expectations have changed or evolved since 4Q, that would be helpful.

Benjamin Gliklich: Absolutely. Right. So, the circuitry and semi business is skewed towards higher end electronics, mobile devices being a core end market there. Handsets were down nearly 20% year-over-year in the first quarter, which wasn’t far from what folks would have expected entering the year. What’s changed is the timing of the ramp in the high-end. So, entering the year, I think there was some talk of a ramp in the second quarter. What we’ve seen is that we didn’t see a strong recovery in China coming out of Lunar New Year post-COVID lockdowns, and the tone is of a ramp late in the second quarter, early third quarter. But we have more reference points today than we did a couple of months ago supporting that assertion.

So, we’ve heard mobile OEMs talking about production rates ramping in July. We’ve heard semiconductor fabricators talking about fab utilization troughing in the second quarter and beginning to recover late in the second quarter and into Q3. And so, we believe that a recovery in these markets is increasingly likely. And that’s the basis for our look forward. And so, what’s changed, I would say, in the second quarter is softer than we would have thought a few months ago, and the back half ramp is more likely.

Kieran de Brun: Great. And then maybe just a quick follow-up on cash flows. You still have a pretty strong outlook for the year. You have a pretty decent amount of cash on hand. So, how should we think about maybe capital deployment priorities as we go through the remainder of the year?

Benjamin Gliklich: Yeah. So, the hallmark of this business is stable margins and strong cash flow in all environments and our guide reflects that dynamic. So, we’re going to generate around $275 million of free cash flow this year. We have cash on hand. I would say that the opportunity cost of that cash and the actual cost of our capital is higher today than it’s been. And so, we’re being very measured with regard to capital deployment. We do believe that you can get unique opportunities in markets like the one we’re in right now. And we’re certainly looking for those, but we’re going to be very prudent.

Kieran de Brun: Great. Thank you.

Operator: Your next question comes from the line of Angel Castillo with Morgan Stanley. Your line is open.

Stefan Diaz: Hello. Thanks for taking my questions. This is actually Stefan Diaz fitting in for Angel.

Benjamin Gliklich: Good morning, Stefan.

Stefan Diaz: I believe last — good morning — I believe last quarter, your guidance was predicated on handset volumes being flat for the full year. I was just wondering what’s embedded in your guide now.

Benjamin Gliklich: Yeah. So, end market assumptions or end market forecasts have changed a bit over the first quarter. Expectations for handsets are down just a little, but other end markets are actually looking better. The data storage market, for example, expectations have improved there. The automotive electronics market, expectation has increased. Wireless infrastructure market growth, expectation has increased. So, modest changes, I would say, but nothing dramatic and nothing that would change our full year outlook other than what we’ve sort of realized in the first quarter and expect in the second quarter.

Stefan Diaz: Great. Thanks. And then would you be able to parse out price versus volume embedded in that organic growth number for each segment?

Benjamin Gliklich: For each segment? So, we haven’t disclosed that in the past. I would say that in the first half, we’re obviously seeing volume down, price improvement year-over-year. And in the second half, we expect to retain the benefit of the price and see volumes improve pretty dramatically because the second half of 2022 is very soft.

Stefan Diaz: Great. Thanks for the color.

Operator: Your next question comes from the line of Steve Byrne with Bank of America. Your line is open.

Rock Hoffman: Hi. This is Rock Hoffman on for Steve Byrne. My first question is, which of the electronics businesses are seeing signs of higher customer operating rates? And could you also kind of describe the operating rates by region for the industrial business?

Benjamin Gliklich: Sure. So, the assembly business was down much less than the higher-end circuitry and semiconductor businesses in the first quarter. And so, you’re seeing greater volume stability in that business, and we would expect that to continue into the second quarter. And the ramp that we’re anticipating in the second half will benefit the circuitry and semiconductor businesses disproportionately. Within the Industrial & Specialty segment, the offshore business has been a real bright spot for us where drilling activity has ramped significantly, and we’re seeing meaningful organic growth in that business, which we expect to persist through the year. In the industrial solutions vertical of the I&S segment, we’re seeing a much stronger performance in the West relative to Asia. The Asia business was down materially in the first quarter, whereas Europe and North America have been quite resilient.

Rock Hoffman: Got it. Thanks. Additionally, do you have any potential new growth drivers this year from your strategy and development initiatives, you’d like to share?

Benjamin Gliklich: Yeah. Look, we’ve been driving a thorough detailed strategy development and implementation program here for a couple of years and we’re seeing real traction at the customer level in interesting new market adjacencies with new technologies. That customer traction is great. It’s hard to see that come through the P&L in a weak demand environment like the one we’re in, but it’s what gives us conviction that we can outperform our markets as they ramp. And we are entering deeper profit pools with faster growth rates, and we have a lot of confidence that we’re going to be successful there.

Rock Hoffman: Got it. Thank you.

Operator: Your next question comes from the line of Jon Tanwanteng with CJS Securities. Your line is open.

Jonathan Tanwanteng: Hi. Good morning. Thank you for taking my questions. Ben, are you explicitly thinking of a broader recession or maybe a soft lighting in your forecasting either late this year or entering 2024? And within those scenarios, do you think that actually impacts your end markets just get arguably already at trough levels?

Benjamin Gliklich: Yeah. Thanks for the question, Jon. Look, the mobile market is off 20% as I said year-over-year in the first quarter. It was down in the double-digits in the full year of 2022. The automotive market, while recovering, is still very far from peak production rates. And the tone from industry participants and the OEMs in our markets is for a ramp in the second half, fully aware of the potential risks in the global economy and during the second half. And so, certainly, we’re subject to broader macro trends. We have been over the past 18 months, but that doesn’t undermine our confidence in the second half ramp. As we said earlier, that second half ramp is increasingly likely today relative to where we were a few months ago. And should it not materialize, we have levers at our disposal to continue to deliver on our commitments.

Jonathan Tanwanteng: Okay. Great. I don’t know if you commented on this earlier, but how should we be thinking of EPS at the low-end of the EBITDA range given the increased interest expense from the updated swaps? And then are there any other puts and takes we should be thinking about just given whatever you can do on the capital allocation side?

Benjamin Gliklich: Yeah. So, we adjusted our EPS guide, if you compare our slide today to the initial slide in our Q4 earnings down to reflect the lower range. There is about $0.02 of capital allocation to get to that $1.40 million in our guide.

Jonathan Tanwanteng: Got it. Thank you.

Operator: Your next question comes from the line of Chris Kapsch with Loop Capital Markets. Your line is open.

Christopher Kapsch: Yeah. Good morning. I had a question tied to the juxtaposition of the intriguing secular growth drivers of your end markets versus the cyclical downdraft that’s being witnessed in units for semi electronic devices currently. And so, as you were coming to the pandemic and even maybe as recently as last year, there was a strong click cadence of quotation activity for new PCB lines. You guys were winning a disproportionate number of those lines, particularly for the advance or more complex devices. So, I’m wondering how should we think about those wins now? Have those lines come on helping our — helping buttress your demand trends versus the broader market? Or are they — and they are just being run at low utilization rates? Or have they — has that capacity been completely deferred or postponed given this macro backdrop? And so, how should we think about the latent demand there for your business?

Benjamin Gliklich: Yeah. It’s a great question, Chris. So, last year and the year before, we were winning more business than we had in prior years, and that actually continues into the first quarter of 2023. There were delays in some of those lines coming on because of supply chain issues and part shortages and some of those lines were delayed because of demand issues. But we haven’t seen significant capacity come out of the supply chain in the printed circuit board market. And as has been well reported, semiconductor fabs are running at lower utilization, but you’re not seeing capacity come out of that industry either. So, as things ramp, we should see the benefit of those new wins. We should see utilization rates increase.

Some of those new lines come into operation and strong pull through and flow through of earnings for our businesses. Again, that’s what gives us conviction and confidence that we can outperform our end markets and benefit disproportionately from the recovery in our markets.

Christopher Kapsch: Got it. That’s helpful. And then to our TMT team at Loop Capital, where they had, based on some proprietary analysis, pretty — some specific reasons for optimism around the Apple i15 variant specifically. And just curious how you’re thinking about that in terms of your enthusiasm and visibility you may have in terms of content per unit or the timing of ramp expectation. How important a piece of your narrative about the second half ramp narrative? Is that one particular area? Appreciate it. Thanks.

Benjamin Gliklich: Yeah. No. Thanks Chris. Without speaking to any specific OEMs, our business does skew towards the non-local Chinese smartphone OEMs. And so, when we think about the ramp in smartphone production, those are the folks that we would be more levered to. We do have more content per unit on each incrementally more sophisticated device which should drive outperformance relative to unit growth. And history would suggest that after less than stellar platform launch, you see a much stronger one in the following year, right? We’ve seen that over the past several years. And so, all those things put together, again, build conviction and confidence that we’ll see a strong ramp in the back half year.

Christopher Kapsch: Thanks for the color.

Operator: Your next question comes from the line of David Silver with CL King. Your line is open.

David Silver: Yeah. Hi. Good morning. Thank you. I had a question maybe focused on your outlook for the automotive sector in particular. So that’s an end market that touches on both segments and a number of product lines. And to quote the eloquent words of one of my predecessors here, there’s secular growth issues juxtaposed with some cyclical variability. But a couple of things, but if you could just give us your sense of how your businesses are progressing as the auto industry goes through its transition to greater EV penetration. And whether you think that the content gains or the contract wins that you envisioned are kind of materializing on schedule? And then more broadly what kind of improvement or trend do you have in the second half of 2023 versus what you’re experiencing in the first half? Thank you.

Benjamin Gliklich: Thanks for the question. The automotive market is a key market for us. It’s been one that has been stopped for an extended period of time and we’re starting to see it recover here. And then there is the secular trend of electric vehicles. So, it’s a pretty compound question. So, for starters, the automotive market should be a modest growth driver for us in 2023 over the course of the full year. Over time, it should be a market that we can outperform units by a reasonably wide margin because of content gains and because of the shift to electric vehicles where we have more value. We’ve talked a lot about our exceptional offering into power electronics market, and that’s been a bright spot across the portfolio in the first quarter where we’re growing really nicely, supporting high-end electric vehicles, where production rates continue to grow.

But even in some of, you could call, our more legacy businesses, like our industrial solutions business, there are more fashioners in electric vehicles than there are in an internal combustion engine car. And so, we see this transition to EV as supporting our broader portfolio. Obviously, there’s more electronics, there’s more power electronics and there’s even opportunities in the industrial solutions business for growth as we see that transition progress. And it’s something we’re very excited about.

David Silver: Okay. Great. I had a question maybe about your CapEx budget. So, the $70 million that was highlighted in your slide deck a little bit higher than where it’s been in the last couple of years. Could you maybe highlight where the discretionary portion of that CapEx where the incremental spending or discretionary amounts are being directed. Thank you.

Carey Dorman: David, this is Carey. Thanks for the question. So, I think — I’ll start with the last point around discretionary versus I guess, I would call maintenance. So, I think the most important thing to note is that the maintenance CapEx spend in this business is really unchanged over the last couple of years, call it, $10 million, $15 million annually. This $70 million that we got to this year, we guided to something higher than our run rate last year as well our historical earnings last year as well. I would expect that after this year, we’re back well under 2% of sales, call it, $50 million, plus or minus. The things we’re doing this year are making CapEx investments to support those strategic initiatives that Ben had talked about a few questions ago.

So, we’re making an investment in China to support power electronics. We’re making an investment in India, and a few other markets where we’re seeing long-term demand from customers to be present, both for production and for research and application labs. So, again, I expect this to come back down closer to, call it, 50, assuming we can spend everything this year. And one of the challenges has been actually getting projects done because of availability of materials. That’s starting to improve, but we’re not through that yet.

David Silver: That’s great. Thank you very much. Appreciate it.

Operator: There are no further questions at this time. I will now turn the call back to Ben Gliklich for closing remarks.

End of Q&A:

Benjamin Gliklich: Thanks very much. Thank you for joining. We look forward to seeing you in the coming weeks and months. Have a good day.

Operator: Ladies and gentlemen, this concludes today’s conference call. Thank you for your participation. You may now disconnect.