Graphic Packaging Holding Company (NYSE:GPK) Q2 2024 Earnings Call Transcript

Graphic Packaging Holding Company (NYSE:GPK) Q2 2024 Earnings Call Transcript July 30, 2024

Operator: Greetings. Welcome to the Graphic Packaging Holding Company Second Quarter 2024 Earnings Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions] Please note, this conference is being recorded. I will now turn the conference over to your host, Melanie Skijus. You may begin.

Melanie Skijus: Good morning and welcome to Graphic Packaging Holding Company’s second quarter 2024 earnings call. Joining us on our call today are Mike Doss, the company’s President and CEO; and Steve Scherger, Executive Vice President and CFO. To help you follow along with today’s report, we will be referencing our second quarter earnings presentation, which can be accessed through the webcast and also in the Investors section of our website at www.graphicpkg.com. Before I turn the call over to Mike, let me remind you that today’s press release and the presentations made by our executives include forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995. These statements are subject to risks and uncertainties and that could cause actual results to differ materially from our expectations and projections.

These risks and uncertainties include, but are not limited to, the factors identified in the release and in our filings the Securities and Exchange Commission. With that, let me turn the call over to Mike.

Michael Doss: Thank you, Melanie. Good morning everyone and thank you for joining us on our call today. Graphic Packaging is a global leader in sustainable consumer packaging. We spent the last eight years of being a stronger, more diverse packaging portfolio capable of delivering consistent results, solid growth, and substantial cash flow for a range of economic conditions. The benefits of that portfolio transformation and the commitment and talent of the Graphic Packaging team were clearly evident in our second quarter results. In the second quarter, Graphic Packaging sales were $2.2 billion. Adjusted EBITDA was $402 million, and adjusted EPS was $0.60. Our reported sales were $155 million below year-ago levels. Excluding the impact of the adjusted divestiture and related bleached paperboard sales, net sales from our packaging business were down $73 million or about 3%.

Overall volumes were flat, in line with our expectation of flat to slightly positive and both price and mix were a small negative, as Steve will discuss shortly. We ran extremely well and our margins were strong despite the very significant planned maintenance expense we incurred during the quarter. That leaves us well-positioned for the second half. Innovation sales growth and customer promotional activity are both expected to move higher in the third and fourth quarters. Turning to Slide 3. We closed on the sale of the Augusta bleached paperboard manufacturing facility on May 1st, eliminating most of our open market bleached paperboard sales. And today, 95% of our sales come from sustainable consumer packaging solutions. Excellence in consumer packaging design, innovation, and execution is what drives our sales, our consistency, and our growth.

We do produce our own paper work. We’re doing so, it drives significantly higher return on invested capital and helps us deliver more consistent results for customers and stockholders. That was the impetus for the Augusta divestiture and the strategic logic behind our Waco recycled paperboard manufacturing project. Construction progress at Waco has been excellent. And recent storm activity in Texas caused very little disruption. We remain on schedule and when we begin production in late 2025, we will extend our competitive advantage we have in recycled paperboard in both economics and product quality across all North America. The investments we are making in our global network packaging facilities, while smaller in dollar terms are equally important to our strategy and our success.

Last quarter, we highlighted the new beverage packaging facility and innovation center in the U.K. And today, I want to highlight two important investments we’ve made here in North America. Our Heidelberg 3D printing press, one of the most productive in the world, reached its target productivity at our Winnipeg food packaging facility in the second quarter. This state-of-the-art press replaces two older presses and allows us to offer seven colors or finishes rather than six along with a wider range of print and design options. It also gives us greater flexibility in layouts and higher speeds, which reduces costs and raises productivity. I’m very proud of the work our Winnipeg team has done bringing this new investment to its full potential so quickly.

In Perry, Georgia, we completed the automation of finishing goods handling at one of our largest beverage packaging facilities. Product handling and a packaging plant has historically been labor-intensive and is the point in the manufacturing process where there is the greatest risk of product damage. The automation project helped us debottleneck, reduce labor costs, and handling risk and drive improved service levels. We have a deep pipeline of projects like these, most of which are relatively low capital costs and high returns. Turning to our packaging results. While volumes are recovering slowly overall, I am encouraged by what is happening inside our portfolio. Our foodservice results are outperforming the industry, beverage remains strong, and our food, our largest market, was dramatically better year-over-year than it was in the first quarter.

As you read in the press, more shoppers are buying groceries at mass retailers and superstores and that includes both private label and branded products. We are certainly participating in that shift. Mass retailers and superstores are just as committed as brand owners to giving consumers the sustainable packaging they prefer. The Boardio coffee canister we discussed last quarter with Mother Parker, the biggest U.S. coffee supplier to mass retail and private label is a good example of that commitment. Innovation sales growth was $51 million in the quarter and we are on track to deliver $200 million for the full year. I was particularly pleased to see solid contribution from strength packaging including coffee K-Cup and snack multipacks for club stores.

And we again saw encouraging contributions from both food and beverage costs. Europe was less than a quarter of our overall sales, but contributed roughly half of our innovation sales growth in the quarter. European consumers are amongst the most sustainably conscious in the world, and that has made Europe the epicenter Global Packaging innovation. Our investment to build Europe’s best innovation platform are delivering results that we are leveraging globally. Our packaging operations ran well and some modest price and inflation headwinds are fully offset by strong net performance. That is a testament to the quality of the Graphic Packaging team and our commitment to delivering consistent results. Slide 4 is something you’re going to see regularly in our presentations because the breadth and depth of our packaging portfolio is the foundation to Graphic Packaging’s consistency and growth.

We serve five markets. Food is the largest, beverage and foodservice are next, and we see big opportunities to grow the scale of both household products and health and beauty. There’s a very good chance that you have held more than one of our products in your hands in the past 24 hours, and will do so again in the next 24. Now, let’s look at our sales in more detail on Slide 5. I think it’s fair to say consumer consumption trends you’re reading about we see in our results. Food markets, which represent 40% of our sales, saw significantly smaller year-over-year decline. With more people back in the office, consumers have less time to cook and that is driving the better results we are seeing in categories like frozen pizza and frozen entrées.

But consumers are also trying to cut costs where they do cook, which is driving better demand for pasta, rice, packaged cheese, which have lower price points for the consumer. Dry food is one of the places where private label is gaining share and that is certainly the case in our portfolio as well. Beverage continues to show strong performance after more than two years of positive comparisons. Soft drink growth outpaced beer during the quarter, while sparkling water and juice were both stronger versus a year ago. Foodservice after nine consecutive quarters of 5% plus year-over-year growth, we did see a very much slowdown, but despite the challenges some of our QSR customers are facing, we actually came pretty close to our 10th consecutive 5%-plus quarter.

That is a function of the strength of our innovation and our continued investment in capabilities and execution. And finally, household products and health and beauty are recovering more slowly versus our other markets. In household categories like filter frames, food storage, and detergents showed an improvement, while tissue and cleansers remain relatively weak. Several major producers have indicated plans for higher promotional activity in the second half. Keep in mind that health and beauty is a small business for us, but has substantial growth potential in North America over the next several years. If you’ll turn to me to Slide 6, you’ll see the seasonality chart on the left that we shared with you last quarter, which describes the typical seasonal patterns for each of our five markets.

For the most part, second quarter tends to be pretty average overall with food normally modestly lower than the other quarters and beverage stronger and no other notable outliers. These seasonal differences are not large, just a couple of percent of the annual total. They reflect underline super behavior patterns that follow things like summer and winter weather and holiday activities. You will notice that none of our unusually strong or weak months come in the second quarter, but you may recall this past March, which is typically the strongest month of the first quarter was weaker for us because of the timing of Easter. That led to a catch up in April. So, that was a small timing difference this year versus normal. While overall consumer packaging volume was flat, we saw volume improvement in Europe in each month of the second quarter, while North America volumes were uneven.

You most often hear me talk about the benefits of our European business in terms of innovation, but this quarter is a good reminder that Europe makes a significant contribution to our ability to deliver consistency as well. Promotional activity by our big branded customers is ramping up in North America, although that trend, not as pronounced in our orders during the second quarter as we expect it will be in the second half. I have already mentioned the strength in mass retail superstore channels we are seeing and private label overall is certainly performing very well. We are managing some pricing headwinds, but the impact on our margins has been quite limited as Steve will discuss. We are executing price increases across most of our North American business, which will address that price pressure.

In Europe, prices mostly a pass-through and paperboard prices appear to be rising again. Looking ahead, the third quarter brings more hot weather and back-to-school. And as you can see on the seasonality chart in the typical year, third quarter tends to be the strongest quarter overall. And July is certainly off to an encouraging start across a wide range of products and customers. Even so, consumers have become much more sensitive to price and value and brand owners are responding with plans for higher promotional activity. Meanwhile, value promotions are gaining traction in QSRs and we are beginning to see that in our order books. Mass retail and superstores are benefiting from the search for better value with multipacks that appeal to consumers seeking to keep per unit cost down.

Back-to-school means the end of vacation season, less time spent outdoors and in general, more meals prepared at home. So, we expect to see a positive impact on categories like prepared foods and snacks. At the same time, fewer remote jobs means less time to cook and that tends to drive growth in foodservice, prepared meals, and ready-to-heat options. We are seeing that in a meaningful way in our European convenience business today and expect to see it again strength in North America in the second half. Slide 7 outlines our five innovation platforms, which we are seeing very strong engagement with customers across all of them. Some of you have asked whether the destocking we saw last year has led to any delays to new product launches. In general, we are seeing that.

Customers do sometimes adjust timing and pace of their launches in response to market conditions, but we tend to have good visibility at least six to nine months out. As a reminder, the $15 billion of potential sales can be identified here only includes opportunities where we already have product solution that has been commercialized or will be commercial very soon. So, it isn’t a TAM in the traditional top-down sense. These are figures we build based on specific target markets and specific plans we already have in place. Most of our large customers have made commitments about the sustainability of the packaging. In Europe, many tell us they want to meet the new standards earlier than they were required to. Our customers’ interest in and commitment to packaging that’s more circular, more functional, and more convenient continues to rise, and the investments we have made to be the global innovation leader in sustainable consumer packaging are paying off.

Last quarter, I highlighted our Boardio paperboard canister, which is now helping to reduce plastic consumption in the U.S. coffee market. Today, I want to highlight another innovation that originated in our European business, PaperSeal Shape on Slide 8. PaperSeal was developed in collaboration with our partner, G. Mondini as a replacement for plastic poles, trays, and other difficult-to-recycle products. PaperSeal started out with rectangular trace, a PaperSeal shape allows us to offer a much wider range of shapes and sizes, including the eight-sided salsa bowl [ph] you see on the left side of the slide. PaperSeal Shape can also be configured with multiple compartments to hold dips and crackers, for example. The PaperSeal product line offers outstanding barrier properties and extended shelf-life relative to some plastic alternatives.

That ultimately reduces both cost and waste. It also offers outstanding credibility that makes brand messaging really stand out. Our first PaperSeal Shape customer in the United Kingdom is Sainsbury’s, one of U.K.’s top good retailers for their private label breaded chicken line. We and Mondini have been working closely with Sainsbury and Moy Park, one of Europe’s top co-packers. Our trays were designed to run on Moy Park’s existing lines, which also handle plastic trays for other customers. Our ability to run on existing lines without expensive modifications is an important and often complex aspect of new product commercialization. PaperSeal reduces plastic content in a tray or bowl by over 70% and the lid and liner separate easily from the paperboard for recycling, which is especially important for European recycling programs.

This one implementation will reduce plastic consumption by about 300 metric tons per year, making it a win for Sainsbury, a win for U.K. consumers, a win for Graphic Packaging, Mondini, and Moy Park, and importantly, a win for the planet. PaperSeal Shape exemplifies our success in creating packaging solutions that are more circular, more functional, and more convenient. Finally, and before I turn it over to Steve, I want to take a moment to remind you that our Vision 2030 is much more than just a set of financial targets. Slide 9 lays out our four pillars of our strategy, which describe our goals and our aspirations. Innovation is at the heart of what we do. Because better, more sustainable packaging is what our customers are asking for and what consumers prefer.

We have an exceptional team and we are working relentlessly to make even stronger. We have clear plans not just targets. We’re reducing our environmental footprint and our packaging innovations to help our customers meet their own sustainability targets. We know how to execute and measure our performance against clear goals and aspirations. We are delivering results. Now, let me turn it over to Steve for a review of our financials and operations. Steve?

Stephen Scherger: Thank you, Mike. Turning to Slide 10. In the second quarter, we executed very well, generating strong margins and adjusted EBITDA, just as we did in the first quarter. Our reported sales were down $155 million, more than half of that decline represented the impact of the Augusta divestiture and the dramatic reduction in our participation in bleached paperboard sales. Sales from our packaging business were down approximately $73 million. Volume was flat, in line with the expectations we shared last quarter. Price was a small headwind of about 2%, and there was a minor negative mix impact of about 1% in our European business. As you will recall, our European business has a significant and profitable health and beauty segment.

The unit price tends to be quite a bit higher than our average, however, which is also true in parts of our European household products business. Both of which were weaker in the second quarter. As such, the decline in high price for unit sales drove some negative mix. Mix was not a meaningful factor in the first quarter in Europe and it was not a significant factor in our Americas results in either quarter. Keep in mind that our European business operates mainly on a price pass-through model, so the mix impact we saw in second quarter sales did not have a material impact on EBITDA or margins. Sales impact from other M&A, excluding Augusta and foreign exchange was basically a wash. Graphic Packaging delivered adjusted EBITDA of $402 million, in line with our guidance.

$47 million, $51 million decline in reported adjusted EBITDA was due to the Augusta divestiture, the related impact of lower paperboard volumes and prices and incremental planned maintenance expense that we called out last quarter, which together came in broadly as expected. Excluding those items, an EBITDA headwind from lower sales, which was primarily price and some modest cost inflation was fully offset by solid net performance. In order to deliver consistent results, we need to manage all of our sales and cost headwinds regardless of which buckets they fall into. And in both the first and second quarters, we did just that. EBITDA impact from other M&A excluding Augusta and foreign exchange was a $4 million headwind. Turning to our balance sheet and liquidity.

As long as our debt levels are reasonable, we compare every potential use of capital against the alternative of share repurchase. On the basis of that analysis, we applied $200 million of the Augusta divestiture proceeds to the repurchase of GPK shares during the quarter. We also addressed upcoming debt maturities. We issued $500 million of senior notes at treasuries plus 188 basis points, our tightest spread to treasuries to-date. We also extended our bank debt to 2029. We currently have no significant debt maturities until 2026. We ended the quarter with net leverage of approximately 2.9 times and expect to end the year at approximately 2.7 times. Our average cost of debt is currently running at 4.6%. Turning to operations and capital investments on Slide 11.

The Augusta divestiture took place on May 1st and by the end of the second quarter, we completed the re-optimization of our Texarkana bleached paperboard manufacturing facility. As you will recall, we sold some open market business that had been produced at Texarkana and filled that gap with production we use internally, which had been produced at Augusta prior to the sale. The planning and execution of those transitions is going smoothly. And as of today, Texarkana is running full, produce these mix of paperboard that we need to serve our customers. As Mike noted, Waco is moving ahead very well. We have nearly 1,000 contractors on site this month. The finished goods warehouse is now substantially complete, two pulpers are installed, and the boiler and drug pulper were recently delivered and are ready for installation.

We are moving as quickly as we can at Waco and with the project going very well, we’ve accelerated spending on equipment. We now expect total capital spending for 2024 to be approximately $1 billion, up from $950 million. We are on track with our recovered board and recovered paper sourcing plans and continue to expect to achieve incremental EBITDA of $80 million in each of 2026 and 2027, a portion of which reflects our plan to shut down two of our older, smaller recycled paperboard manufacturing facilities. After those closures, we will have a total of five paperboard manufacturing facilities in our system, all of which will be modern and well-invested. Mike shared some details on the kinds of projects we are doing in our global packaging network and those investments are delivering the productivity we target.

The benefits from each of these projects are different, but what they share in common is a rapid financial payback and expansion of product capabilities or an increase in productivity, greater reliability, and improved customer service. These types of projects range from a few million dollars to the low tens of millions of dollars and are included in our planned 5% of sales, capital spending commitment post-Waco. And finally, the Bell packaging tuck-under acquisition, which we completed in September of last year, is now fully integrated and target synergies of approximately $10 million have been achieved. Bell has expanded our foodservice platform and has plenty of room for further volume growth without significant new investment. On Slide 12, to summarize our recent dividend and repurchase activity.

In the second quarter, we returned approximately $230 million to stockholders through a combination of dividends and share repurchase. We bought back approximately 7.2 million shares or about 2.4% of our shares outstanding for a total consideration of $200 million at an average price of $27.61 per share. For your modeling purposes, we ended the quarter with approximately 300 million common shares outstanding or about 301.2 million shares on a fully diluted basis. Turning to Slide 13 and the outlook. As Mike noted earlier, July is off to an encouraging start in both North America and Europe, and customer engagement is high across all of our markets. We continue to expect 3% to 4% volume mix growth in the second half and excluding the impact of the Augusta divestiture, we continue to expect full year volume mix to be modestly positive although current price headwinds may offset that positive benefit in 2024.

We currently expect to return to low single-digit sales growth in 2025. We are on track to deliver $200 million of innovation sales growth in 2024. And as we indicated last quarter, we expect full year 2024 adjusted EBITDA margins in the 19% to 20% range and expect to deliver adjusted EBITDA in the range of $1.73 billion to $1.83 billion. Our adjusted EPS guidance also remains unchanged. We indicated last quarter that 2024 would feature a pronounced first half, second half pattern that is quite unusual for Graphic Packaging. After delivering adjusted EBITDA of $845 million in the first half, or $849 million guidance at the midpoint, becomes $935 million of adjusted EBITDA for the second half of the year. That translates to a $90 million increase in the second half over the first half.

Keep in mind, that approximately $50 million of that improvement will come from less planned maintenance expense. The rest we expect to come from the 3% to 4% volume mix growth I referenced a moment ago and a continuation of the very strong execution and net performance we delivered in the first half. Slide 14 summarizes our Vision 2030 financial metrics and our capital allocation priorities, which we presented at the Investor Day in February. Low single-digit top line growth driven by innovation and execution. Mid-single-digit adjusted EBITDA growth, reflecting the leverage in our financial model as well as the returns we expect from the investment in Waco and the ongoing productivity projects we have in our pipeline. High single-digit EPS growth due to combination of higher pre-tax earnings, lower leverage over time, and reduce share count.

Once the Waco recycled paperboard manufacturing investment is complete in late 2025, we will hold capital spending to 5% of sales to support growth and drive net performance. We expect to generate cash flow well in excess of our needs over the next seven years, and our priorities for deploying cash are clear. Once we complete the Waco investment, our capital priorities will focus first on maintaining and strengthening our leadership position in sustainable consumer packaging. After reinvestment, our next highest priority is returning capital to stockholders through a growing dividend and share repurchase. Every potential use of cash is measured against share repurchase, which is good basic financial discipline. We do plan to reduce leverage over time.

But as we have indicated previously, we are comfortable with our current debt levels and satisfied with our maturity schedule and overall cost of debt. We expect leverage to fall over the next couple of years and will pursue an investment-grade debt rating at the appropriate time. We have the assets, the capabilities and the team we need to deliver on our Vision 2030 goals. We will, of course, continue to evaluate tuck-under acquisitions where they can accelerate our growth, we’re driving even higher returns. Last year’s Bell acquisition was a good example of that. Slide 15 is from our Investor Day presentation. Over the next several years, we expect to generate roughly $5 billion of cash flow with 2024 being our peak CapEx year. In 2025, we expect CapEx to be at least $200 million lower than in 2024.

And in 2026 and 2027, we expect to see the healthy returns from the Waco investment and generate substantially higher cash flow, which we will deploy to drive further value creation. On Slide 17, you will find some supplemental information that may be useful for modeling purposes. That concludes our prepared remarks this morning. We will now turn the call back to the operator to begin Q&A. Operator?

Q&A Session

Operator: Thank you. At this time, we will be conducting a question-and-answer session. [Operator Instructions] Your first question for today is from George Staphos with Bank of America.

George Staphos: Hi everyone. Good morning. Thanks for the details. My two questions, first one will be on volume and the second one is on margin. In terms of volume, gentlemen, can you talk a bit about what you’re seeing? You said July is off to an encouraging start. What are you seeing early in the quarter? And which end markets are giving you the most confidence in terms of that 3% to 4% adjusted growth rate for the second half of the year? Relatedly, how much is the trend towards more promotion, changed commercial strategies, et cetera, from your customers driving that? And I had a margin question.

Michael Doss: Morning George, thanks for that. Look, as July has kind of come in, we’ve seen continued strength in our European business for sure. As we talked about in our prepared comments, we saw that every month in the second quarter and that’s carried over into Q3. We also see encouraging signs in the Americas business, specifically on the food business, which, as you know, is our largest. I caution you, it’s early. We’re one month into the quarter, but we’d like to see so far. I think you couple that with a number of our large customers who, in the last few weeks, have reported results and they’ve talked about their desire to increase promotional activity. And we’re starting to see some of that activity as well. Beverage and foodservice were very strong for us in the second quarter.

And you saw yesterday with McDonald’s release, they’re going to extend their value meal. So, we expect all of that to kind of inform the overall results that we’re seeing. And I think the piece that Steve talked about in his prepared comments, again, just to reiterate, as you look at our back half of the year and compare it against 2023, 2023 was down anywhere between 5% and 6%, as you know, in Q3 and Q4. And so what we’re seeing is we’re going to come back 3% to 4% this year. And if you put our innovation on top of that, it’s roughly 2%. So, our confidence level in that 3% to 4% is quite high given the factors I just outlined.

George Staphos: Thanks Steve. Thanks Mike. The second question I had on margin, again, kind of similar. What gives you the comps at this juncture that you can get to 19% to 20% for the year Mike, given that you’re under 19% in the first half? I recognize maintenance was part of that. So, you’re going to get a sequential pick-up there, but what else is driving that, that you can call out? Relatedly on mix, usually, foodservice is pretty strong for mix from what I remember until I was just curious, along with Europe, if there’s anything else in terms of why mix was negative in the first half and why that dissipates in the second half towards your margin goal? Thank you and good luck in the quarter.

Stephen Scherger: Yes. Thanks George, it’s Steve. Just in terms of the kind of first half, second half, as we shared in the comments and just provide a little bit of color here for you $845 million of EBITDA in the first half, 19% margins, midpoint of our guide, $935 million in the second half, so plus $90 million first half to second half. $50 million of that is math. We will take $50 million less in planned maintenance expense. The second quarter was very heavy for us as we articulated. So, $50 million of the $90 million comes through just less planned maintenance expense. The remaining $40 million of improvement, really two things. One, as Mike just mentioned, a return to modest growth, 3% to 4% in the second half compared to the first half.

We’ll earn on that appropriately. And then overall, we expect net performance to continue to be very strong. We’re running our overall system, both at packaging level as well as the paperboard manufacturing level, quite full, here in the second half of the year. Last year, as you know, we were taking quite a bit of market-related downtime to manage supply and demand. And so really those three things, the $50 million from reduced planned maintenance expense, and then the next $40 million from earning on the growth, and the ongoing strong performance gives us confidence that we’ll operate in the 20% range in the second half and then obviously right in that 19% to 20% range for the full year.

George Staphos: Okay. I’ll turn it over. Thank you.

Michael Doss: Thanks George.

Operator: Your next question is from Lewis Merrick with PNB [ph] Paribas.

Lewis Merrick: Morning Mike, morning Steve and thanks for taking my questions. Two, if I may. Good to hear the really strong performance in Europe in the innovation sales. I was hoping you could share a bit more detail into how your European operations are performing and how the market is playing out there relative to the U.S.? And also may be bigger picture, how does that business fit in with the overall portfolio? Any color you could shed down on those two points would be appreciated. And then I’ve got one follow-up. Thanks.

Michael Doss: Yes. Thank you, Lewis. I appreciate the question. Look, we were really pleased to see that — as you heard Steve talk about over half of our innovation sales were in Europe this year. We talked a lot in the past around the European consumer being the most sustainably conscious in the world. There’s a proof. You live in that market, so you know exactly what I’m talking about. From that standpoint, it really shows why the acquisition of ANR and the subsequent scaling out of our innovation activities in Europe is so important to our business because we get those trends, we see them early, we capitalize on them, and then ultimately, we’re able to move them around the globe to other areas where we have operations, including our largest market in North America.

So, that was great. I would tell you our European business is outperforming the broader market in Europe simply because of all the innovation activities we’ve got in place. Our team does doing a really nice job finding these opportunities. We profiled the Sainsbury opportunity this earnings call with PaperSeal Shape and we’ve talked a lot about Boardio in the past, and they also have a very big business on trays and containers, that’s continuing to grow. So, we like our pipeline there and expect to continue to see it grow. I think the other point, and Steve called this out, again during his comments, is that Europe is not our biggest business, but it was — it’s a real big important part of our ability to deliver consistency in results. Every month in the second quarter, we saw month-on-month gains.

And so we like seeing that quarter part of our portfolio and you’re going to see us continue to invest there.

Lewis Merrick: Okay. Thank you. And maybe building just on George’s question. Can you maybe give us some color on what sort of exit rate for volumes were in June? And has there been any acceleration throughout the quarter? Thanks.

Stephen Scherger: Yes, Lewis, it’s Steve. I think as we were articulating as the quarter played out, we kind of saw flat to modest growth. We ended up at flat. And so May, June played out roughly as expected. I think importantly, as Mike mentioned in his commentary and in mine as well. July has come in consistent with our guide. So, we’re pleased with what we’re seeing in July, consistent with that 3% to 4%, second half volume growth. And so July is meeting those expectations and obviously, gives us support for those expectations existing for the second half of the year.

Lewis Merrick: Many thanks.

Stephen Scherger: Thank you.

Operator: Your next question for today is from Ghansham Panjabi with Baird.

Ghansham Panjabi: Yes, hey guys, good morning. On Slide 5, where you have all the end markets nicely broken out, food, beverage, et cetera. What drove the outperformance in Beverage that you called out as something that was tested out for Q2? And then as you kind of think about the back half of the year, how do you think those arrows trend, at least in color in 3Q and 4Q across those end markets?

Michael Doss: Yes. So, I’ll take the first part and let Steve handle the second, Ghansham. In our case, beverage, again, there’s a big part of innovation there that we were able to drive new sales and some of the opportunities that were in front of us. And look, it doesn’t hurt that the margin was hot in North America. So, demand was solid, and we saw a good pull through there.

Stephen Scherger: Yes, Ghansham, I think as you look out and take the 3% to 4% volume growth we’re articulating, obviously, that chart includes price as well. So, it’s a sales view. So, we’ve got a little bit of headwind on the sales side, the 2% that we’ve articulated. So, it’s our expectation that the kind of the bottom right arrows, if you will, will turn more green, kind of in that sideways zone, 0% to plus 2%. Obviously, it could even be a little bit higher than that. But keep in mind, it’s a sales slide. And so we would expect that those arrows to kind of move nicely. Certainly, foodservice, beverage, we would expect to continue to see positive as we mentioned, food got materially better, but still down in the second quarter.

So, that inflection more towards neutral will be important. And then obviously, household goods and in the health and beauty side, we would expect to see some reasonable inflection. So, not everything will move perfectly up at the same time, but I think if you look across the portfolio, we’d expect the arrows to be moving in a positive direction as we kind of embark on Q3, Q4.

Ghansham Panjabi: Okay, great. Thanks for that. And then if you can compare and contrast 2023 versus 2024, 2023, obviously, was impacted by aggressive inventory destocking and then as your unfolded consumer affordability issues, et cetera. Is the reason you’re not seeing a more pronounced increase in volumes in context of the inventory destock comp? Is it just because consumer affordability and weakness has just gotten worse? And so your customers are still running at very low inventory levels. How are you thinking about those dynamics?

Michael Doss: I think you’ve answered it pretty well. I mean, look, the consumer is definitely changing some of their buying habits in terms of — in response to some of the pricing we’ve seen in the marketplace. Having said that, I think the thing that we continue to make the point of here is just our broad-based portfolio has a really big reach into a number of different verticals outside of the center of the store. Now, we’ve purposely built that out over the last 10 years. I mean, as a general statement, if you’re seeing movement in Nielsen, and we’re participating in that. We’re seeing it in our backlog. So, — and that’s really the company we’ve worked hard to build. So, we’re almost agnostic around how that kind of shifts and where it goes.

And ultimately, we’re seeing that play out. I would agree with your statement that our customers have been pretty cautious around building any inventories. So, that’s been a part of it. But overall, we see our backlog continuing to grow on the paperboard side based on the orders we’ve got on packaging. So, our confidence is pretty solid here in this 3% to 4% inflection on the back half of the year as a result.

Ghansham Panjabi: Okay. Thanks so much.

Operator: The next question is from Lars Kjellberg with Stifel.

Lars Kjellberg: Thank you for taking my question. I just wanted to get some incremental clarity on the volume component that you’re talking about in H2. Clearly, you have an easy comparable as you pointed out, so how should we think about that in sequential terms? And also, coming back to that, if you’re talking about a low single-digit growth in 2025, how does that fit in with a potential continuation of a, call it, $200 million innovation growth in 2025? Any color on that? And then I have a follow-up.

Stephen Scherger: Yes, Lars, it’s Steve, I’ll start and then Mike can add anything in addition. I think you touched on it. Obviously, we were down 5%, 6% last year, so a positive 3% to 4% this year. Really, we view that as an appropriate assumption. Just as Mike said, the consumer is under reasonable pressure. So, it’s not really a substantial volume assumption through consumer level. We expect some modest return to promotional activities by our customers. And then importantly, in the second half, our innovation engine, hence your part of your question for 2024 and 2025, we’ll be at over $100 million of innovation growth in the second half. That alone is a little over 2% growth. That’s a real stabilizer for that 3% to 4% assumption in the second half.

Importantly, given the model out into 2025, our pipeline of innovation-based projects remains to be very good, fundamentally sound. It’s diverse across our portfolio of products and markets. And so we’ll continue to see in the 2025 and beyond. That couple of hundred basis points of growth coming from the innovation engine, which is important for us just given that, that’s a real enabler for the low single-digit top line growth.

Lars Kjellberg: Got you. And the follow-up is more so on the upstream business. Of course, there’s been talks about the import penetration for a fairly long period of time. And we’re now seeing, of course, your competitors mainly in Europe are seeing surge in wood costs, et cetera. So, are you seeing any change in their behavior in terms of trying to win business in the U.S.? And generally, how do you see more — potentially then a more increase in the domestic market in terms of the paperboard developing for your total business again in North America, but potential risk for input penetration, has that reduced? Or how do you view that?

Michael Doss: Thank you, Lars. I appreciate the question. We’ve talked in the past that there’s been imports into the U.S. market at various different grades for some time. We historically — and this is certainly true for 2024, I just have not seen much of that in the end-use markets that we participate in. Just not a big factor for us. But having said that, it has received a fair amount of press and I think maybe it’s worthwhile to take a little bit of a step back and talk about where that is really coming from. I mean in our case, in North America, the predominant place where we would see any imports from would be the Scandinavia countries, not Asia, as an example, or Latin America. It’s really pretty limited to Scandinavian countries.

And if you really look at the overall cost structure, there it shifted dramatically in the last couple of years with the Russian sanctions that have been put in place by the EU, roughly 10% of the wood that used to be consumed in Scandinavia now is no longer available because it can’t be imported. On top of that, in the Scandinavian countries, almost another 10% has gone into pellets as opposed to pulp. I shared that with you just by way of background. So, if you think about it, almost 20% of the wood that was there a couple of years ago, is there now. It is not available for [Technical Difficulty] different purpose. As a result, Scandinavian producers are well chronic with this. They’ve seen their costs go up 40% to 50% over that 24-month period of time on their primary input costs, which is wood.

On top of that, you see container costs continue to escalate. You put that all together, you’re putting your product on the water is trying to be shipping into a market that’s already very well-supplied. Probably isn’t a great medium to long-term strategy, maybe in the short-term, it can work for a little bit. But overall, I’d say that those dynamics probably work against them along those lines. One of the trade publications talked about in addition being a substitute for SBS, but it also replace coated unbleached paperboard, which we’re a big producer in that didn’t make a lot of sense to me, to be honest with you, given predominantly, when you use that grid is really around care and strength characteristics. And I asked our packaging engineering team and we’ve seen any of that application and anything that we do and they going think of it.

So, is certainly on a list of things we’re watching, but it’s not very high up on the list of things that we’re concerned about, and I’d say is more pressure on imports today from a cost standpoint than certainly six months ago. And I would expect that to continue to be the case. So, it’s very manageable from our point of view.

Lars Kjellberg: That makes sense. Thank you.

Operator: Your next question for today is from Mike Roxland with Truist Securities.

Mike Roxland: Thank you, Mike, Steve, and allowing me for taking my questions and congrats on a good quarter. Just wanted to start with foodservice. I’m just wondering if you could help me reconcile the foodservice growth that you’re showing in the chart of 2% to 5% versus where recent industry stats for 2Q, which show the mid-single-digits decline. Is your outperformance versus most that innovation customer mix? Just trying to help reconcile what the stats showing versus what you’re showing in that client in terms of your own book of business?

Michael Doss: Yes, Mike, I appreciate the question. It’s really two things. It’s the innovation that we’ve been driving as well as our Bell acquisition that contributed to that. So, you put those two together, and that’s really what’s driving our outperformance in the marketplace. And we’d expect that to continue along those lines.

Mike Roxland: Got it. And then just on cupstock. I believe that Suzano is buying from U.S. assets that produce cupstock. I believe that cupstock like that looking to buy is currently a small part of what those could ultimately do, but it seems to be a focus area or could be a focus area with them buying those assets. Any concerns there? Any concerns over the Chick-fil-A business or any future potential business given these new entrants?

Michael Doss: I’m aware of the purchase, the announced purchase. I believe you’re talking about Suzano’s purchase of the Pine Bluff mill from Pactiv Evergreen. I’m not knowledgeable of course, what their long-term plans are for that facility. For the most part, that facility has been focused on liquid packaging board, which really tends to be more mill card in stock. Having said that, if you think about the implications for Graphic Packaging, as you heard Steve talk about in our prepared comments, really with the Augusta sale and the consolidation of our business into our Texarkana mill, we’re full. We’re making the grades of paper that we need there, including cup and our bleached paperboard material. So, our strategy is working exactly as we expected it would, driving high levels of utilization and good ROIC where for our investors based on the grades of paper that we want to make.

So, again, all that cupstock that we make goes into our own cup facilities. So, it’s in addition to even if you decide you’re going to make greater paper, you got to have an outlook like where are you going to sell that stuff to. And we’ve got five very well-capitalized cup facilities that are integrated well into our Texarkana paperboard manufacturing facilities. So, our strategy is very different.

Mike Roxland: Got it. Thank you.

Operator: The next question is from Matt Roberts with Raymond James.

Matt Roberts: Hey Mike, Steve, Melanie, good morning. Steve, I apologize if I missed this in a response earlier, but the 3% to 4% second half growth, is that purely a volume number with mix neutral? And in second half, what are you embedding in price following the recently announced increase? And on that price increase, is there anything different in the environment now versus February when you took the prior increase?

Stephen Scherger: Yes. Thanks for that, Matt. I’ll start and Mike can add here as well. That 3% to 4% is a volume assumption. Mix is neutral. We expect mix to be as it’s really been pretty modest to neutral. Overall, right now, we’ve got a little bit of pricing headwinds as we talked, that’s kind of running in the 2% range, so a modest offset to the 3% to 4% net volume mix assumption, which cumulatively would make all that modestly positive. And as you referenced, we are executing on price increase moves in the marketplace that we’re executing on currently.

Matt Roberts: Okay, great. Thank you for the clarification there. And then one more clarification for me. On the innovation sales target for second half, how much of that is — how much of that incremental lift is dependent on volumes from newly introduced products versus new products coming to market? And on the latter point, are there any delays or anything that you could foresee that could push any timing into 2025? Or is that $200 million in 2024 looking pretty solid?

Stephen Scherger: Yes, Matt, at this point in time, it’s really solid. Basically, if it’s in motion, it’s a part of the $200 million. I’d say there’s very little that would be what we’d characterize as something that’s not commercial today. It may be on the verge of commercial, and it’s in our outlook into the second half of the year. But that $200 million, we obviously track it every month is rock solid for the year. Importantly, as we talked earlier, the pipeline to support the next $200 million into 2025 remains robust, no major moves across the portfolio of projects that we’re working on. And I think we remain very positive on how diverse that portfolio of projects remains both in terms of markets as well as the product portfolio that we’re executing on.

Matt Roberts: Very good. Thank you again for the color Steve.

Stephen Scherger: Yes, thanks Matt.

Operator: Your next question for today is from Mark Weintraub with Seaport Research Partners.

Mark Weintraub: Thank you. So, just on this second half sales or volume increase, I should say, I’m sorry. So, I think if we look at your organic sales from last year, they were about 1.5% lower in the second half than the first half. And so since you noted that you were about 2% lower in the first half year-over-year, I assume it’s fair to say that the sequential improvement 1Q — first half to second half is pretty similar to the year-over-year? Maybe it would be slightly more, is that a fair assumption?

Stephen Scherger: It would be better, Mark, by following your logic. I think as we mentioned earlier, year-over-year plus 3% to 4% came off of last year’s second half, which was kind of minus 5%, 6%. So, it’s not even a full recovery of the destocking and the headwinds that we experienced last year. From a first half to the second half level, it is an acceleration in terms of volumetrically, we’ll have sequentially first half to second half, higher sales across the packaging platform that will support it. So, I think to your question, it’s a positive first half to second half. I think the 3% to 4% is obviously year-over-year coming off of last year’s comparison of minus 5%, 6%.

Mark Weintraub: Right. So, just — and I think given the information you provided to us, we can calculate that it is roughly to be more exact, the 3.5% to 4.5% increase second half versus first half? Is that in the ballpark?

Stephen Scherger: That’s directionally correct. Yes.

Mark Weintraub: Okay. And then given that you are — this is sort of a recovery mode, how should we think about incremental margins on the sales increase? Because I’m sure it’s better than your underlying normal EBITDA margin. How should we think about that?

Stephen Scherger: It is higher, Mark. It’s higher than our 19%, 20%, obviously, because you get good strong absorption across the totality of the platform. So, yes, I think if you’re doing the math you’re doing and you’re putting value on that 3.5% to 4%. If you’re in that 25%, 30% range, you’re getting to the back half that we’re talking about earning on with the incremental $40 million of EBITDA first half, second half, that’s supported by the 3% to 4% and the ongoing performance and including the full absorption of our assets.

Michael Doss: That’s a good question, Mark. It’s Mike. I think the other thing you saw this in the data that was released by [indiscernible] here on Friday, you see it in the coated recycled and the uncoated paperboard, coated — unbleached I should say, 400 basis points sequentially, second quarter to first quarter, backlogs are growing and inventories are down beyond those grades of paper. And really, that’s a function of these orders starting to flow back through. And so if you think about the second half we had last year, we took a fair amount of market-related downtime. It was mostly on the bleached paperboard side, but it also affected these other grades to some degree. And so as Steve said, now you run steady, you don’t incur those costs. So, that’s got a big positive margin impact.

Mark Weintraub: Great. And one last one.

Michael Doss: Sorry Mark, go ahead.

Mark Weintraub: Sorry. One last one, hopefully not burying myself too deep in the weeds here. But — so also you don’t have Augusta in the second half. And I think you’d originally talked about it being $30 million to $35 million. And so is that productivity gains that sort of is going to get us that last part to get us to the midpoint potentially? Or is there some other potential lever to be thinking about?

Stephen Scherger: No, it really is, Mark, because if you think about it here in the second half, Texarkana is running absolutely full. We’ll earn very well there. And last year, we were taking an exorbitant amount of downtime across the two facilities. So, actually, our earnings power on the bleached platform in the second half of the year, we’ll look a lot like last year’s cumulative second half where we had two paperboard manufacturing facilities, and that’s also one of the big enablers for the $50 million of reduced maintenance expense. A lot of that was taken at Texarkana. So, the bleached capabilities, the earnings profile of the business is supported by less maintenance expense, running full at Texarkana, a busy cup business, and obviously, supportive of what we’re seeing on the recycled paperboard down bleach side.

So, that overall volume is allowing our system as we’ve now defined it to be running quite full here in the second half of the year, hence, generating significant net performance.

Mark Weintraub: Super. Thank you.

Michael Doss: And for the operator, we’ll go another 10 minutes or so given there’s some additional questions out there. So, go ahead and proceed, please.

Operator: Certainly. Your next question for today is from Anthony Pettinari with Citi.

Anthony Pettinari: Good morning. Can you talk about kind of the level of inflation you’re currently seeing across your major cost categories? And I guess, directionally, what level of inflation you’re kind of assuming for the second half?

Stephen Scherger: Yes, Anthony, it’s Steve. As we’ve talked kind of cumulatively, we have a relatively modest amount of inflation running through the business. We’ve got areas where we’ve got costs moving down like wood and energy and chemicals and the external paperboard that we acquired to support our business. For example, in Europe, we’ve got inflation in areas like resin and OCC, logistics and labor and benefits. So, it’s remained reasonably benign. We’re not making any assumptions for large movement in those costs in the second half of the year. So, it kind of is steady as you go. Obviously, if we see movement up or down, we’ll take that into consideration when we talk about the business. But broadly speaking, if you talk in historical terms, the little bit of modest price headwinds as well as a little bit of inflation that’s coming through the business is being offset by — and even labor benefits inflation is being offset by the good, strong performance we were just charging about a couple of minutes ago.

Anthony Pettinari: Got it. Got it. And then just following up on the price hikes in the North American business. I guess to the extent you can, can you talk about how those are sort of being accepted? And is it fair to say that the benefit would show up for you more in 2025? Or any thoughts on kind of potential lag there?

Michael Doss: Yes. So, Anthony, I will confirm that we’re actively implementing the price increases on a number of the substrates that we manufacture. I’m not going to talk about forward-looking comments in terms of how those will go other than to tell you that we’re working hard to recover those, implementing those increases. As we do — as Steve said, we do have inflation coming into the business, it’s benign now. But ultimately, we did see things like OCC that’s at an elevated level. We need to recover those costs and be in a position in 2025, as you said. And you know how this works. I mean, we’re basically a six-month delay offset or lag, if you will. And so ultimately, the vast majority of the pricing that would be recognized would ultimately show up in 2025, as you alluded to.

Anthony Pettinari: Okay, that’s helpful. I’ll turn it over.

Operator: The next question is from Arun Viswanathan with RBC Capital Markets.

Arun Viswanathan: Great. Thanks for taking my question. I guess I just wanted to review how you’re thinking about Q4. Last year, you had some accelerated or elevated downtime levels. But this year, it seems like you will be exiting maybe in the $460 million to — $450 million to $460 million EBITDA range. From there, do you see the likelihood of strong growth, maybe you talked about 1% to 2% or low single-digit volume growth for next year. Would you be able to leverage that maybe to mid-single-digits? Is that how we should be thinking about how your EBITDA could potentially grow next year?

Michael Doss: So, I’m going to parse that out into two responses, Arun. Thanks for the question. If you really look at the second half of this year, as I’ve commented on, we expect our paperboard manufacturing facilities to run [Indiscernible]. We’ve taken the vast majority of our planned maintenance. As you heard Steve talk about that was $50 million more from a cost standpoint in the first half than it will be in the second have. And we ultimately need to run those paperboard manufacturing facilities in Q3 and Q4 to make sure that we’ve got the paperboard we need to continue to service our customers. It’s way too early to prognosticate about 2025. What we are committed to is our Vision 2030 that we’ve rolled out there. You heard Steve talk about low single digits is kind of our focus for 2025.

Could it be more? Sure. Could it be less? I mean, there’s a lot of macro factors out there that ultimately impact that, as you know, but I think we’ve got pretty good visibility six, nine months out in our business given its consumer index as opposed to industrial index. And as a result of that, our confidence level in our three to four right now going into the second half of the year is high. You know that in Q1 of this year, we were down a little bit versus the prior year. So, you got to factor that into how we’ll head into 2025 too in terms of how you look at your modeling. But that’s how we’re thinking about it. And of course, we’re quite aggressive on trying to make sure that we’re capturing all those innovation opportunities that we see out there, and we continue to stay very focused on our ability to do so.

Arun Viswanathan: Thanks for that Mike. And then just a quick follow-up. So, just wondering how you guys are thinking about cash flow from here? It sounds like, again, you pointed out an $800 million to $1 billion level, maybe in 2026. CapEx should be coming down next year. What kind of magnitude of reduction in CapEx are you expecting from that $1 billion this year? And then are you seeing any opportunities where you could deploy that cash flow maybe could something come out of recent transactions? Or is it mainly buyback focused? Thanks.

Stephen Scherger: Yes, Arun, I’ll start and then Mike can add on. Yes, we expect cash flow to improve in 2025 because CapEx will step down at least $200 million year-over-year. So, really, the vision that we laid out for improving cash flow and then, obviously, 2026 to 2027, we see all the benefits of the Waco investment driving towards the kind of very substantial cash flow that we expect to generate over those couple of years. So, really no change at all in kind of the direction of Vision 2030 from a cash flow generation. And Mike, do you want to take the–

Michael Doss: Yes, I think, look, if you look at Vision 2030, we really talked about CapEx as a percentage of sales once we got past Waco and into 2026. So, let’s just call it as a baseline year being at 5% or below in terms of CapEx as a percentage of sales. And post-Waco, in Steve’s prepared comments, he made the statement, if we end up closing the two smaller coated recycled paperboard mills that we’ve targeted to do as part of that project, we have five very well-invested mills. And our ongoing CapEx requirements for maintenance is around 2% and I want to repeat that around 2%. And so ultimately, we’ve got a fair amount of money there to drive the decarbonization that we’ve outlined as part of our Vision 2030 initiatives, as well as to continue to pursue some of these smaller CapEx projects like we’ve profiled a couple of them in our prepared remarks.

Replacing presses two for one, that’s a nice trade. Looking at automation activities in our warehousing operations that ultimately reduce the amount of outside warehousing we need and the labor associated with it, you’re going to see us work on those kind of things. So, we really love the positioning we’ve got coming out of Waco both in terms of how our paperboard manufacturing facilities will be positioned as well as the ongoing cash flow that we’ll have to invest in smart projects in the business because our maintenance requirements will be pretty off there.

Arun Viswanathan: Great. Thanks.

Michael Doss: I think we have time for one more question.

Operator: Your final question for today is from Phil Ng with Jefferies.

John Dunigan: Good morning Mike, Steve. This is John on for Phil. Thank you for all the details and squeezing me in here. I just want to start off the price in the quarter was a little bit more negative than I was expecting. Is that all from the index moves that are just flowing through? Is there anything else that’s in there? And then just also we were pretty impressed with the productivity that was able to offset that negative price plus the cost inflation in the quarter. Obviously, you’re talking about having less economic downtime in the back half and some of the throughput and efficiencies from the converting projects and investments that you’ve made. So, I would think that the productivity line to be probably stepping up a bit and should be more than enough to offset negative price of about 2% that you noted and maybe some of that ongoing inflation.

Is that appropriate? Or is there any way to help us quantify how we should think about net productivity in the back half?

Stephen Scherger: Yes. Let me take the price piece, Mike can touch on the performance piece, which we are very pleased with, obviously, in terms of how we’re punctuating across the platform. The only thing I’d probably note for you on the pricing, the minus 2%. Keep in mind that 1% of that is really a price pass-through of reduced paperboard costs in Europe. And so that for us is really a pass-through. That’s half of it. The other half, the 1% is a little more related to the whole portfolio of prices that we have across the Americas, the models that are out there, et cetera. So, that would be the only nuance for you because that pass-through is relevant because it’s really margin-neutral for us and it’s half of that price reduction. Mike, do you want to talk to performance?

Michael Doss: Yes. Look, John, you mentioned it. I’m really proud of the efforts that our team put forth in the first half of this year in terms of overall execution. As I mentioned, we took a lot of our planned downtime. So, there’s a lot of things we had to move around to support our paperboard manufacturing facilities in that process. So, the second half with us running full and volumes stepping up a little bit. I’d like to say we’re going to continue to drive good productivity here in the second half of the year.

John Dunigan: That’s great. And if I could just add on one quick clarification because I appreciate that you’re calling out the ending share count after reducing the shares by about 2.4%. Are you done with deploying those proceeds from the Augusta mill sale? Or are you still looking to buy back more shares here in the second half?

Stephen Scherger: Yes. We don’t really forecast or embed share repurchase into our guidance or into the go forward. So, we’ll continue to be appropriate in measuring everything that we do against share repurchase, but there’s not incremental share repurchase assumed in or embedded in our forward statements.

John Dunigan: All right. That’s helpful. Thank you very much.

Stephen Scherger: Thank you.

Operator: We have reached the end of the question-and-answer session, and I will now turn the call over to Mike Doss for closing remarks.

Michael Doss: Thank you, operator. Thank you, everyone, for joining us on our call today. I’m proud of the results our team is delivering, excited about our innovation pipeline, and optimistic about our growth outlook. Graphic Packaging is leading the way in sustainable consumer packaging. Vision 2030 is about execution and delivering results across a wide range of economic conditions, and we are demonstrating that we can do that exactly. Thank you and good day.

Operator: This concludes today’s conference and you may disconnect your lines at this time. Thank you for your participation.