So we feel pretty good about where we are for the fourth quarter, not where we would have liked, clearly, but I think the market had a lot to do with it. We’re glad Ober-Schmitten is behind us. We’re glad that some of these one-time items that came in Q2 were truly one-time items. And I think the second quarter — the third quarter’s results have demonstrated that. And so it’s a matter of doing whatever we can within our span of control, making sure we keep a tight lid on costs and be ready with a very, very strong operating leverage for when that volume does come back to be able to really realize full potential here.
Josh Wool: All right. Makes sense. My last question is just — and I’m obviously not asking for a cash flow guide for next year. But as I think about just some of the items that you guys have dealt with this year in terms of like payable terms changing is, I guess, payment to utilities changing, the one-time turnaround cost that you’re spending, can we think about next year’s cash flow being more earnings-driven? And I guess vis-a-vis working capital the level you’re at today, is it a normalized level? Is it a level that’s high because raw material prices are still pretty high and so working capital could be a source of funds next year? Just any general color on the contours of free cash flow next year would be helpful.
Ramesh Shettigar: Absolutely, Josh. First of all, you’re right that next year’s cash flow will primarily be driven by earnings. But there are several one-time items that have hit us this year. It’s the CEO transition cost that we’ve talked about. It’s the turnaround actions and the cash cost related to that. You’re right about the working capital challenges on the payable side, but then we’ve also done a pretty good job of trying to counteract as much of that as possible with tight inventory management and really collection of past dues. So yes, overall, we would expect an improvement in the cash burn going from 2023 to 2024, driven by earnings, driven by some of these one-time items. And if input costs do continue to come down, then that use of capital — working capital will also improve.
So we remain optimistic about our cash usage in 2024 relative to this year because there are a lot of things that we believe were onetime in nature that are not expected to repeat itself. And we are also looking forward to earnings growth year over year, which will also generate more cash flow for us.
Josh Wool: Perfect. I’ll turn it over. Thanks for all the color.
Ramesh Shettigar: Thank you.
Operator: And our next question comes from Roger Spitz with Bank of America. Please go ahead, sir. Your line is open.
Roger Spitz: Thank you and good morning. Can you comment on why spunlace wipes and hygiene were down so much more than airlaid wipes and hygiene? Maybe talk about are they going after different markets, different uses, sort of comment the difference between the two?
Thomas Fahnemann: Yeah. I mean, you have totally different qualities here and the airlaid is the qualitative higher product. And spunlace also as far as markets are concerned, this is yes, there is competition there, but it’s still, I would say, our market position is relatively good in airlaid. Now spunlace is a highly competitive market environment. And what you also see in spunlace, it is a lower-end product. And what you also see is there’s a lot of competition from Asia. And we deliberately — and this is what I was relating to when I talked about the Soultz and Ashville that we deliberately didn’t participate in certain businesses and it’s always a question of volume versus price. And I think we are on the right path because both sides are profitable now and they weren’t before. But we – again, our decision that certain volumes, we don’t want to participate in that kind of business.
Ramesh Shettigar: So yeah, Roger, and you know that the volume that Thomas is referring to is what I mentioned in my remarks, which is we had to take a look at the customer portfolio, particularly in Soultz, where that has been a very cost-uncompetitive site for us. We addressed it with taking a fair number of people out in terms of production workers, but then also went and looked at our customer book of business and the margin profile and chose to walk away from volume because it was just not contributing to the bottom line. So that is also adding to this comparison you’re talking about between spunlace and airlaid.
Roger Spitz: Got it. And just to be clear, the Asian competition is also fiber-based wipes and products as is yours, meaning…
Thomas Fahnemann: Spunlace. Yeah, spunlace.
Roger Spitz: You’re not competing with propylene-based wipes, correct?
Thomas Fahnemann: Correct, correct. No, no, that spunlace, that’s comparable product and if we say Asia, spunlace and again, also there, Europe much more competitive than the U.S. But the spunlace capacity, it’s Turkey. And I can also mention now that we were approached from the non-wovens association in Europe, whether we would start and participate in an anti-dumping claim and we are thinking about that. So there’s more product coming in where we said this is at the level of raw material prices. This doesn’t make any sense. It’s not sustainable. And so the industry in Europe right now, producers are through the organization, the association are considering an anti-dumping case.
Roger Spitz: Got it. And then second question is what I refer to as sort of other operating cash flow costs, what I mean by that is if you look on your cash flow statement for OCF and then you’ve got EBITDA, interest, taxes, and working capital, right, the things identified and then everything else is kind of like everything else, it’s restructuring, what have you, cost of severance and CEO change. So in first half of ’23, that was a $16 million and change outflow. We don’t have your 10-Q yet, so I don’t know what was it in Q3? And do you have a guidance for what sort of that other number would be for the full year?
Ramesh Shettigar: Yeah. So I would say for the third quarter, it was about $4 million. And then for the fourth quarter also we’re expecting about $4 million, Roger. So I think what you’re trying to get at are the elements that go from, call it, free cash flow down to net cash flow, right? And if I use the column that we have in our cash flow statement, the year-to-date 2023, which is through Q3 and you look at this negative $67 million of free cash flow before we make our adjustments to get to adjusted, the pieces that are missing that you’re not seeing on this page, which you will see in the Q are things like the Ober-Schmitten cash costs that we’ve had, things like the cash cost incurred with our refinancing in the first quarter and so on.
So when you add all that together, that’s another $15 million of use of cash. So year to date, we are probably at around, call it, negative $80 million or so. And then we’re — based on our guidance going into the fourth quarter and for full year, we expect that to improve by about, call it, $10 million in the fourth quarter. And a good chunk of that is going to be coming from working capital. So those are the elements that really get to what we define as net cash flow after all the sources and uses of cash to get to the cash burn. Is that helpful, Roger?
