Michael Doss: You can appreciate that healthcare in general tends to be pretty stable. I asked our European President, Joe Yost, a little bit about that. His view is this was just largely timing how they chose to produce. We don’t expect it to materially change with the demographics of people continuing to age in both North-America and Europe. Those are going to be good markets going forward.
Anthony Pettinari: Okay. That’s helpful. I’ll turn it over.
Operator: The next question comes from Gabe Hajde from Wells Fargo. Gabe, your line is open. Please go ahead.
Gabe Hajde: Hi, Steve. Good morning.
Stephen Scherger: Good morning, Gabe.
Gabe Hajde: I wanted to revisit the price — thank you, Steve. The price concept. And I appreciate that they’re proprietary on an individual basis. But just for the benefit of all of us in the outside world, can you describe for us how much of your domestic converting business is today conducted on an indices versus non-index based? And then as you do find success with your strategy to migrate away from these, when do you envision maybe not having to announce public price increases for third-party recognition? And then the last one is, it sounds like, Mike, from your commentary that the sales ramp in the second half will be kind of a combination of all three. So in other words, additional innovation sales that you guys are able to monetize, price being positive as well as volumes being positive on a year-over-year basis. And I’m talking about sales volume versus I appreciate production volume will likely be up given the downtime that you took?
Michael Doss: Yeah. Look, I think you answered the second part of the question accurately. And that’s exactly how we expect it to play out. In regards to kind of pricing, Gabe, as we talked about at our Investor Day, we’re just not planning to disclose the percentages anymore relative to how it all works, whether it’s a cost index model that we’ve got with our customers or some other form of index model that we work with them because we do view them as proprietary. And I think it’s demonstrated by the fact it’s working. Take a look at our EBITDA margin, how we’ve been able to have consistency there and continue to perform at the type of target that we put out there, the 20% target that we’ve got as part of our Vision 2030, it’s going to be a variety of things.
And maybe the best way that I can do to kind of give you a little bit more color on is talk about how it actually works. So the mechanism itself isn’t something that, is the first thing we talk about with customers. We contract with customers on a renewal or in a new situation with pricing that we establish both with them and with us. What we’re really talking about is how input cost inflation moves over time up or down and there’s a variety of different methodologies to do it. We’ve been moving away from third-party indexes for years. As you know, we’ve been very public about that. And now we’re just going to accelerate that process going forward. And so we’re working with a number of customers on different ideas that we have and they have for how to provide better transparency between the two parties, more accuracy between the two parties and an agreement that shares the value that we bring and that they ultimately want from us.
And so that’s really how we’re approaching it. It’s a multifaceted commercial process that we’ve got. And beyond that, we’re just not going to get into kind of necking it down to the finance percentages because that’s really not — that doesn’t help you understand the business better in our opinion.
Stephen Scherger: And, Gabe, just repeating a key point that Mike is making. The vast majority of the pricing-related discussions we have with our customers are focused on the value of the package, a vast majority of them. We’re constantly renegotiating with customers, whether you’re on a one-year contract, a two-year contract, a three-year contract and the minority of the discussions are about the price change mechanism, which is what you’re asking about. And so we’ll just continue to talk about how we’re operating and running the business holistically as a consumer packaging business, obviously with the margin profile that we’re committed to continuing to maintain and grow.
Gabe Hajde: Okay. I appreciate the margin comment, guys. Real quick point of clarification, Steve. I think you responded to an answer or to a question about the Augusta mill, a $100 million of EBITDA. Did you mean 100,000 tons of downtime? And I apologize I just — I missed it. 100,000 tons of downtime in the second half?
Stephen Scherger: Last year, we had about $100 million of market-related downtime in the second half of the year that we do not expect to repeat this year. I think to Mark Weintraub’s question, Mark was just providing some context around kind of the earnings profile, first half, second half last year, the bleached paperboard business as we ran as a system, generated significantly more profitability in the first half of the year than the second half of the year, hence the negative comp here that we’re managing through in the first half, which becomes much more de-minimis in the second half of the year as we operate what will be the Texarkana facility with our own internal needs being run quite full to support our own packaging needs from that facility effective literally tomorrow.
Gabe Hajde: Yeah, understood. Thank you.
Stephen Scherger: Thanks.
Operator: Our final question today comes from Adam Samuelson from Goldman Sachs. Adam, your line is open. Please go ahead.
Adam Samuelson: Yes, thank you. Good morning, everyone. There’s been a lot of grounds covered today. So I’ll try to be brief. As we think about the innovation sales growth for the year, $200 million of which realized $37 million. In the first quarter, implies a ramp to the back half of the year. Can you just share with us how much of that is PaceSetter Rainier at this juncture versus just — it doesn’t seem like some of the big items, whether it’s the Chick-fil-A or Nissin or Boardio would be applicable on that? And are you actually seeing incremental value uplift from PaceSetter Rainier at this juncture or is that still incremental into the future and maybe dependent on a second source of supply in Waco?
Michael Doss: Yeah. Thanks for the question, Adam. We are and continue to see traction with PaceSetter Rainier. We actually have three commercial applications. We’ve got a dozen or more in testing and I think that’s an important distinction to make. Since it is a new grade of paperboard, we’ve got trials and qualifications that ultimately have to take place and we’re in the midst of doing those. We do expect it to make a contribution to that $200 million total because it already is. Admittedly, it won’t be a huge chunk of it in 2024, but momentum building into ’25 and ’26, absolutely, yes. The balance of the $200 million is the types of things you just described. It’s a foam to paper conversions for cups, it’s trays and bowls, it’s Boardio.
We’re really excited about Boardio. You look at Boardio, it started as a friendship and formula. Anything that’s kind of that granular like coffee we’ve got or rigid like gum or confectionery items, I mean it really fits it well. It’s a $2.5 billion opportunity for us, and we’re quite confident we’ll wind up with over $200 million worth of sales in the next couple of years for that category alone. And it’s a sticky sale. There’s a machine that goes in with our customers and really helps them with merchandising and branding it. So that’s really where our focus is to drive that stuff. But, yeah, very excited about PaceSetter Rainier. And ultimately, as you correctly pointed out, in ’26, we’ll have another paperboard machine capable of making that greater paperboard, which is very exciting.
Adam Samuelson: Okay. Great. I appreciate the color. I’ll pass it on. Thank you.
Operator: This concludes today’s Q&A session. And I would now like to hand the call back to Mike Doss for closing remarks.
Michael Doss: Thank you all for joining us on the call today. I’m optimistic about our growth outlook and pleased with the progress we are making with innovation sales. Vision 2030 is about execution and we are off to a good start. As I mentioned earlier, if you missed our Investor Day, I hope you’ll take the time to listen to the replay, which you can find on our Investor Relations website. Graphic Packaging is a much different company today than it was just a few years ago and I truly believe that our value-creation story is just getting started. Thank you. Have a safe and a very good day.
Operator: This concludes today’s call. Thank you very much for your attendance. You may now disconnect your lines.
