Good day and thank you for standing by. Welcome to the Ashland Inc. Third Quarter 2024 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speakers’ presentation, there will be a question-and-answer session. [Operator Instructions] Please be advised that today’s conference is being recorded. I would now like to hand the conference over to your speaker today, William Whitaker. Please go ahead.

Thank you, Deedy and hello, everyone. Welcome to Ashland’s third quarter fiscal year 2024 earnings conference call and webcast. My name is William Whitaker, Vice President of Finance and Director of Investor Relations. Joining me on the call today are Guillermo Novo, Ashland’s Chair and Chief Executive Officer and Kevin Willis, Senior Vice President and Chief Financial Officer. Ashland released results for the quarter ended June 30th, 2024, at approximately 5:00 PM Eastern Time yesterday, August 6th. The news release issued last night was furnished to the SEC in a form 8-K. During today’s call, we will reference slides that are currently being webcast on our website, ashland.com, under the Investor Relations section. We encourage you to follow along with the webcast during today’s call. Please turn to slide 2. As a reminder, during today’s call, we will be making forward-looking statements on several matters, including our financial outlook for our fourth quarter and full-year fiscal 2024. These forward-looking statements are subject to risks and uncertainties that could cause future results or events to differ materially from today’s projections. We believe any such statements are based on reasonable assumptions, but cannot assure that such expectations will be achieved. Please refer to Slide 2 of the presentation for an explanation of those risks and uncertainties, and the limits applicable to those forward-looking statements. You can also review our most recent Form 10-K under Item 1A for a comprehensive discussion of the risk factors impacting our business. Please also note that we’ll be referring to certain actual and projected financial metrics of Ashland on an adjusted basis, which are non-GAAP financial measures. We will refer to these measures as adjusted and present them to supplement your understanding and assessment of the financial performance of our ongoing business. Non-GAAP measures should not be considered a substitute for or superior to financial measures calculated in accordance with GAAP. The most directly comparable GAAP measures, as well as reconciliation of the non-GAAP measures to those GAAP measures are available on our website and in the appendix of today’s slide presentation. Please turn to slide 3. Guillermo will begin the call this morning with an overview of Ashland’s performance and results in the third quarter. Next, Kevin will provide a more detailed review of the financial results for the quarter, followed by commentary related to Ashland’s outlook for our fourth quarter and full-year fiscal 2024. Guillermo will then provide an update related to Ashland’s strategic priorities and then we will open your line for questions. Please turn to slide 5. I will now turn the call over to Guillermo for his opening comments. Guillermo?

Thank you, William and hello, everyone. Thank you for your interest in Ashland and for your participation today. Let me start with a few of the headlines driving our performance. We delivered continued progress on all our portfolio actions. We had strong Personal Care sales growth across markets, and we saw improved Specialty Additives volumes and we showed disciplined price management and high-quality margin performance. Headlines were driven by lower life science, VP&D volumes mostly in Europe, softening Specialty Additives volume momentum versus our expectations and increased price pressure. While improving sales trends continued during most of the quarter, June was weaker than expected and this trend has continued into July. Our Q3 sales were roughly in line with our prior year at $544 million. Note that our portfolio improvement initiatives reduced sales by approximately $15 million or 3% during the third quarter. Sales volumes improved 5% led by 22% growth in Personal Care and 5% growth in Specialty Additives. Excluding the portfolio improvement actions, overall sales volume grew by 8%. Looking at the businesses. Personal Care had one of the strongest quarters on record. The strong performance was broad based across markets and regions, particularly in strategic markets such as biofunctionals, microbial protection, as well as the Asia region. Specialty additives volumes continued to improve versus our prior year and the business sustained its strong margin expansion delivering 810 basis points on a sequential adjusted EBITDA margin improvement. Although volume demand improved, it was below our expectations. The regional recovery has been mixed with lower demand and increased competition in Asia, as well as the Middle East and Africa. In life science, the biggest headwind was VP&D. Overall, VP&D market demand was softer than expected in pharma and crop care. And we reduced exposure to the lower margin nutrition…

Thank you, Guillermo and good morning, everyone. Please turn to Slide 8. Total Ashland sales in the quarter, $544 million, or roughly in line compared to prior year. The previously-announced CMC and MC portfolio optimization initiatives reduced overall sales by approximately $15 million or 3% during the third quarter. Year-over-year quarterly volumes increased 7% as demand recovered within the Personal Care and Specialty Additives segments. These volume gains were partially offset by unfavorable Life Sciences volumes. Regionally, overall sales into our largest markets, North America, Europe and Asia, were stable to improving. This was offset by weakness in Latin America and Middle East Africa. Gross profit margin increased 290 basis points to 36.2% in the quarter, which is one of our higher margin quarters over the last five years. Several factors contributed to this improvement, primarily sales and production volume increases, as well as product mix. This was partially offset by unfavorable pricing versus raw materials, approximately half of which is associated with Intermediates. When excluding key items, SG&A, R&D and intangible amortization costs were $110 million in the quarter, down from $113 million in the prior year. In total, Ashland’s adjusted EBITDA for the quarter was $139 million, up 5% from the prior year. Ashland’s adjusted EBITDA margin for the quarter was 25.6%, up from 24.4% in the prior year. Adjusted EPS, excluding acquisition amortization for the quarter, was $1.49 per share, up 21% from the prior-year quarter. Now, let’s review the results of each of our four operating segments. Please turn to Slide 10. As Guillermo mentioned, VP&D was the largest impact in the quarter for Life Sciences. Overall, VP&D demand was softer in pharma, as well as in crop care, and we also reduced our exposure to low margin nutrition business. The largest impact was related to…

Thank you, Kevin. Please turn to slide 20. Our strategic priorities remain unchanged and continue to guide actions, investments and profitable growth expectations. As we've discussed before, the priorities include initiatives to execute, globalize, innovate and acquire. We're making good progress on our execute priorities and expect that momentum to continue in Q4. We're aiming to achieve our current portfolio optimization efforts by the end of the calendar year. In addition to CMC, MC and Nutraceuticals, we are finalizing plans and actions to exit the Avoca business as the market dynamics for the sclareolide business has fundamentally changed and the tolling activities are not core to our strategies. We recognize that we continue to live in uncertain times. As such, we will continue to operate with disciplined approach, focusing on the things that we can control and drive near-term performance. To perform beyond market demand dynamics, Ashland needs to focus and advance its own growth catalyst. For us, this means demonstrating traction on our execute, globalize and innovate strategy. As we look at fiscal year 2025 within the execute initiatives, we will focus on strengthening the areas that are core to us. We have initiated a focused effort to strengthen and improve our competitive position in both VP&D and HEC. We're working to drive share gain activities in VP&D, particularly in pharma. And this means careful management of volumes and pricing. We're investing to globalize and innovate priorities, and we are strengthening our team and our ability to execute. I'm very pleased with Ashland's progress and investments who are late, which are laying the foundation for future profitable growth. Please turn to slide 21. Activities are underway to globalize four of our extremely attractive businesses, which currently represent 10% of Ashland sales. The globalized business lines grew well in the…

[Operator Instructions] And our first question comes from Christopher Parkinson of Wolfe Research. Your line is open.

Great. Thank you so much. Guillermo, I feel like we're moving in the right direction and yet there's still a little bit of complexity to the story. Can you just help us think about the 2025 bridge? Just in terms of some of your previous quarterly commentary around the $40 million of total fixed cost absorption, the $20 million of fiscal first half destocking, Kevin's prior quarter comments about market growth off of lower levels, that seems a little bit more muted now perhaps, and as well as the kind of the new product intro outlook. I feel like those are the four main things, obviously partially offset by portfolio optimization efforts. So, could you help us just kind of simplify how the buy side should be thinking about the perceived EBITDA bridge as we enter fiscal year 2025? Thank you so much.

Thanks, Chris. Clearly, a critical question. The key, as I hope everybody took the key issue for us in the quarter is VP&D and pharma, and we're working. it is about -- the biggest issue is about the share dynamics, which we have been talking in prior quarters. So, what's changed in terms of our outlook? If we look at two resets, what's the normalized 2024. and then what's going to happen in 2025? I think in 2024, we're giving a guidance of 465 to 475. The only thing that's changed is our VP&D market share outlook. Everything else remains unchanged. So, we're still working through, I think on the VP&D side, what does that share regain mean? It's a balance of price and volume and that's something that we're managing. I want to be very clear on the price, I think we performed very well. Our margins are doing very well. We are market leaders here. We're in a transition point just like when you have inflation, you have to move up prices and it takes a while to work through. We're now on the transition to the other end of the equation and we're managing through that. As market leaders, we can't just go in and trash the prices and move to aggressively without thinking through the actions that we're taking.

I own that.

This has been a very conscious management of where we're going on some of these volumes. It is a balance of share price. If we get all the volume, but lose it all on price, we're not any better off. There's a saying, I've been working with several many companies. There's a saying in commodities, you sell out and sell up. In specialties, we say we sell up and then sell out. They sound the same, but they're not. We do as market leaders need to manage the pricing, our positioning of our products, how we react with what products we react and that's what we're working through. Our managing to the long-term, we want to make sure that we maintain a healthy strategy here. So, we're not managing for a quarter only. We're managing for the longer-term and this is we'll manage through this transition. The team is on it. We're already getting share there. The part that we need to work through, Chris, for 2025 is the timing, because we need to deal with quarterly contracts, annual contracts with different customers, and that's probably the biggest change. Everything else, there's not a lot of change. For 2025, the only other change I would say that we're looking at and it's early on. So, I would classify it as an uncertainty. We don't have a definite view is in the coding space. The dynamics in China, we've seen things slow down a lot. That's something that we're trying to integrate into our planning. We don't have numbers for you for 2025 yet on that. For Europe and the U.S., it's about the growth rate. And frankly, this could change a lot depending on interest rates, what happens to the home resale market. There's a lot of dynamics. So, a lot of moving parts that between now and our next call when we talk about 2025, we'll be able to clarify. But for everybody, the big issue -- the only issue that really is changing right now is how we manage the VP&D pharma share transition.

Got it. And just as a quick follow-up. sorry, go ahead.

Just to be in terms of the Q1-Q2 recess that we've been talking about, there is no change to any of that. Those are still just as they have been. Internally, we don't view them any differently and they shouldn't be viewed any differently by the buy side or the sell side. Normalized Q1 and Q2 are still right, where we think they have been.

I appreciate that clarification. And just very quickly on personal care, I mean, I don't want to focus too much on the pharma side given your detailed remarks. But on the PC side, I mean you did see double-digit growth across skin, hair, oral, so and so forth. Just given the way that market's been trending over the last four to six quarters, is that just a normalization process of simply your customers no longer destocking just based on incredibly easy comps? Is that -- demand seems stable-ish from an end user demand. So, just how should we be thinking about that? Is there any restocking? And once again, just really trying to focus on the setup for fiscal year ‘25 given the fact that performance is in fact coming back? Thank you.

Yes. Chris, I'm trying to avoid the word normalization and destocking, because that's behind us. If not, we just keep using this as a crutch moving forward. The only space that we know the customers still have elevated inventories and they're working them down a little bit and that was really more about their own risk management was pharma and we're seeing that a little bit in Europe. But everywhere else, I would say to the degree that we can measure, the destocking is over. Now, it's really about demand and what's happening with core demand with our customers. When we talked last year about normalization, it was a normalization of destocking not of the market. The markets have been actually quite flat over the last few years in some of the segments. For many of our customers, personal care and coatings growth has been around price versus volume. I think, what we're starting to see now in personal care is volumes have picked up. I think that's probably an issue of consumer choices of where they're spending their money. They're not spending it in hard goods and spending it more in other activities, which benefit the personal care space. We'll see how the coatings, I think has a different, coatings construction. That area will have a different dynamic, but we feel good about personal care. We are monitoring China. For us right now, China has done very well. I think we're seeing two worlds in China. The multinationals are probably having a harder time. The local companies we're doing very well with them. So, it's -- we have to take a focused look at the specific markets and customers.

Thank you.

Thank you. Our next question comes from John McNulty of BMO Capital Markets. Your line is open.

Yes. good morning. Thanks for taking my question. So, Guillermo, in your prepared remarks, you spoke to June having softened and that actually carrying through July. What are the markets that are actually seeing that bit of a downtick? It seems like coating has been a little bit rough to start anyway. So, I'm not sure if that -- where that would necessarily be getting worse. So maybe, you can just help us to think about what might be fading a bit?

Yes. If you look at -- it's mostly in Specialty Additives, I would say, coatings is the biggest one, so that's where we look at. And it's -- I would say, we use the term in the prepared remarks, expectations, versus prior year we're growing. The market is recovering, things are moving, that’s why we're confident on the production, some of the things that Kevin said around Q1 and Q2. So, the issue is what's the rate of growth going to be, we are seeing North America and Europe were a little bit we expected it to be a little bit stronger. It has not materialized. It's growing, but not to the degree we thought of a market recovery. That could change, depending on what happens with interest rates and the residential housing and those kinds of trends. China, we've definitely seen a big change and things are slowing down there. We're trying to gauge what are the repercussions of that in China, but also with competitors in China, they'll have a place to put the products. We've seen that in other industries, where they're moving aggressively in other areas. So, we're trying to manage. Those are the two biggest things that I would say we're looking at in terms of the downturn. In pharma, Europe that we said, that's an area of destocking. We're not hearing anything directly from customers. I think everybody's very cautious about, how they layout their volumes and demand outlooks. For August, we're seeing a little bit of improvement, but we're not going to read too much into it at this point in time I think, three points make a trend. We don't want to react to point to point. And I do think we'll get a little more visibility on the macroeconomic dynamics in the coming quarter as the elections and all the actions from the fed and others take place across multiple markets.

Got it. Okay. That makes sense. And then when looking at Personal Care and Specialty Additives, you spoke to at least a little bit of price weakness there. I guess, maybe, two questions on that. Is that primarily a reflection of the raw materials having faded or is there also, I think at least on the Asia part it sounds like maybe a competitive issue as well. But I guess, can you add some color to what's driving that? And then I guess the other question would just be sequentially has the pricing got worse? I know last quarter; you spoke to some pricing degradation across a couple of the businesses. Is it kind of roughly the same as where we were a quarter ago? Has it worsened? I guess how should we be thinking about the trajectory?

I would comment in pricing is in two dimensions and I think you alluded to it. One is deflation and the other one is competitive dynamics. On the deflationary side, raw materials are coming down. We're moving and we've said that, that was probably going to happen in place, we went up, we go up. We tend to maintain margins. So, our issue here if you remember in 2022 when we increased prices, we didn't increase margins. We maintained margins and our margin improvement was through productivity and mix improvement. I think what we’re seeing now is going to come down our work is do the same thing, making sure that we’re managing margins down in a deflationary environment and that'll take it's not going to happen just at one time. And then you have the competitive dynamics, VP&D that I talked about. And I do think we're looking very hard at Asia and especially China, what’s going to happen there, because I think those could be a little bit more disruptive. Intermediates already happened. Most of the big moves were in Q2, Q1 so earlier in the year. Right now, we're still seeing more of that deflationary trend. They're more aligned with raw materials. So, we're still seeing some, but it's -- I would say, it would be the normalized glide to more deflationary environment. And as I said, the competitive side that's the one that we'll continue to monitor and we'll report out.

Got it. Thanks very much for the color.

In the quarter, Johns, for personal care, price and raws were perfectly imbalanced. There was no benefit, no pain. And just to be specific, we have not seen acceleration from a pricing decline perspective. It's basically stayed fairly flat in terms of what we've experienced earlier in the year.

Got it, very helpful. Thank you.

Thank you. Our next question comes from David Begleiter of Deutsche Bank. Your line is open.

Thank you. Good morning. Guillermo, on the VP&D pharma issue, can you actually size that for us? Is it in the $5 million to $10 million range? Is it higher or lower?

Okay. It was probably if you look at versus prior year, in this quarter, it was the biggest delta probably around $14 million versus Q4, our outlay is probably more flattish. So, it was mostly in the in the Q3 in terms of a prior-year comparison.

Very well. And just on that issue, I believe what happened was a competitor had an outage you gained, you picked up business while they were out. They came back on stream. and I guess, they're taking more than their fair share with pricing, even though historically, they're not really a big price competitor, they tend to keep you on value is that, what's happened here? They're just being more aggressive than usual and you're reacting to that? Thank you.

Yes. I think two comments. One, from the volume loss and it's probably about a third of the shortfall for offsets in the market that recovery in Europe hasn't happened to where we want it and probably two-thirds is this pricing dynamic that you're asking about. The competitive dynamics we talked about it last time. We have an old competitor coming back in, production normalized. We have to be realistic to keep them out. The price cost would be too high. So, we've been managing through that and the glide path. I will say, the pricing question of what they do, you should ask in another earnings call, ask them. I can't really comment on what they're doing, but we are seeing very aggressive pricing. Remember that for -- and it's BSF, obviously in the -- as your question in Europe, but then it's China supply that we're -- it's not just we look at Asia, we look at Latin America. So, we're dealing with both of those issues, because when BSF was out, that will open the door for them. So, we're managing through that, but it's been very aggressive. And I think for different reasons, European companies having their own problems. VP&D is not the driver of their cost structures or whatever. So, whatever they do for other businesses, I assume this is what happens, downstream in some of these larger commodity companies. And in China, I do think that export markets like we're hearing in other markets, we're seeing that. The issue for us is, remember we're the market leader. So, we're going to manage through that to our customers. We didn't lose customers. We lost volume within customers. So, we have to manage that price. We still have a lot of business with the same customers at a higher price. So, we're managing through that, and the customers want to do business with us. There's nothing wrong. There's nothing bad going on in the market. I think it's just our balance of how we position ourselves. From an ERM [ph] perspective, remember in pharma, the world is not going to shift to everything supplied from China, because that's going to be from an ERM going to be high risk. So, we need to be prudent. We need to manage through this. This is a process. It's impacting us in this quarter. but this is not the first time that us or anybody else has to go through this level of transition. But it is a little bit more aggressive than we thought in terms of the pricing dynamics.

Thank you.

Thank you. Our next question comes from Michael Sison of Wells Fargo. Your line is open.

Hey, guys. Good morning. I just wanted to make you understand the VP&D share loss from a guidance perspective. So, I think you said that, the outlook is reduced to 465, 475. A prior outlook was 485 in the midpoint. So, is the share loss, everything else is the same. Costing $10 million to $15 million EBITDA and if you decide not to go after that volume, because of pricing, is that kind of the fundamental lower EBITDA that you'll have to deliver going forward?

So, Mike, thanks for the question. Two dynamics; one is, how we're managing the transition. So, we made our choices on balancing pricing and volume gains. We've seen our margins. We're still in a very strong position. So, a part of the gap is that there was -- the share loss that we have. The other part and more into Q4 is the recovery. What we're working through right now is negotiating with customers. They want it like I said, we're already gaining share in Asia and parts of Latin America. The issue is a lot of these customers have either quarterly contracts or annual contracts. All of that is happening now this quarter and the annual contracts is most likely next quarter. So, this quarter, our fiscal fourth quarter and our fiscal Q1 is when a lot of these negotiations are happening. And then the volume itself would come back in, I would say, more Q1, Q2 of next year depending on the contracts. So, what's changed also is our view of the timing. We were expecting to take some actions. As I said, the pricing was more aggressive than we thought in our -- when we did give our guidance in April. So that's changed some of our calculus. So, it's a little bit of both sides. It's not just the loss. It's the rate of gain that we're also adjusting. But we won't recover parts of that. The issue that we need to look at and we're not ready to talk about right now is for 2025. What's that balance? Do we regain all the volume, but at what price? We remain half the volume, but a better price. So, there's scenarios that we're working through. And obviously, we really cannot talk about that, because we're in negotiations. It's competitive dynamics, and I don't want to go into a lot of details there. But that's the high-level issues.

Got it. And then, I mean, if you do hit your Q4 outlook, and I annualize the third and the fourth quarter EBITDA, the run rate looks pretty good, kind of close to that 5.50 level as you head into 2025. I know it's a little bit early to give us sort of a thought on 25. but maybe, any way you can give us a couple of bridges that might help us understand what the potential EBITDA run rate is for next year and going forward?

Yes. So, Mike, as you look at your model, the two issues to factor in, and I won't give you specific numbers. But it's the VP&D pair and how we manage that. So that's a factor. And we're saying that one's probably going to be net a little bit lower than we what we thought about before. And then the other one is this whole dynamic in China and just the overall market rate of recovery, that could change positive or negative for next year. We're not ready to talk about. Those are the only two things that have changed. And I want to make it very clear. Everything is moving as we thought, and as we plan and execute it. We have one big issue. It's clear. It's transparent. We've been talking about it several quarters. It's how we manage the VP&D. We're managing it. You can see it in the margins. There are trade-offs that we make and that's the biggest issue. Everything else other than just macro market dynamics, nothing really has changed from what we said before.

Thank you.

Thank you. Our next question comes from Mike Harrison of Seaport Research Partners. Your line is open.

Hi. good morning. I was hoping, Guillermo, that maybe, you could talk a little bit about what you're seeing on the cellulosic side within life sciences. It sounds like that is performing a little bit better. What's driving the divergence, I guess, between what you're seeing there and what you're seeing on the PVP side?

Mike, thanks for the question. because I think that's an important one to remind everybody. This market is stable. It's growing. It's moving well. So, life science business overall, the market is okay. Our cellulosic business has been growing, it's been stable. I think probably, the growth we would have liked a little bit more especially in Europe, because the market recovery also impacts that a little bit. but it's been net positive overall. We have a very rich portfolio of innovations in Klucel, Benecel that are moving very well. So, I think that part of the portfolio is holding up in very strong position. The issue with in pharma is really about a re-entrance and a rebalancing of supply within an industry that had a lot of change in 2022, and that's what we're working through it. So, it's more of a competitive dynamic than really a market dynamic. as you can see by the difference between cellulosics and VP&D.

All right. And then I was hoping that we could also talk about the portfolio optimization, maybe, just kind of at a high level. How is that optimization progressing within CMC, MC and HEC relative to your expectations? Have you seen any negative impacts or stranded costs that you weren't expecting relative to those initiatives?

So, they're all moving very well. I think, as you said, we communicated, and then we've implemented most of the direct, not all the changes, but all the direct changes in the plants on CMC and to a degree on the MC, which we announced a little bit later. we'll move through a little bit of things there. So, those two are moving very well. We're not exiting the markets. We're just making sure that these -- the size is proportional to our strategic intent. We want these volumes more to balance out our production, but these are not the core businesses that we want to grow it. So, that's going very well. We still need to do a little bit more after the nutraceutical sale to rebalance other costs outside of the plant. So, we're still working. but nothing has changed in our plan or our outlook over. It's not going to be in day one, but through 2025, it should be all neutral in terms of the EBITDA impact of these areas. Hopefully, I mean, our intent is to make it positive that when -- that now we can turn into allocating our resources to more positive activities. The part that I'm excited is really around, the CMC assets in Hopewell specifically, that we can now at much lower capital intensity repurpose those assets to support the new novel cellulosics. Novel cellulosics are looking really good. We have a number of starch-based products, guar-based products and cellulose is a big product. So, it's all the polysaccharide chain, but we got to have a place to make them. So that's probably going to be, I think, the more exciting thing. I don't think we'll be able to convert it in 2025. but we'll report more. We're going to finalize…

Thanks very much.

Thank you. And our next question comes from Jeff Zekauskas of JPMorgan. Your line is open.

Thanks very much. In Specialty Additives and operating income, you were in $22 million in the third quarter and you were in $10 million in the second and your revenues were down $7 million sequentially. Can you just provide a bridge to, so that we can understand the improvement from $10 million to $22 million?

Yes. It's going to be primarily in volume and the way the plants operated during Q3 versus Q2, Jeff. So, we produced more, we had higher absorption, we sold more volume, you have a price cost dynamic in there as well. but it's primarily volume related. If you remember, we've been running slower, because of all the inventory actions and now this year we're starting to pick up as we move forward.

Okay. And in terms of the VP&D issue, so the meaning of the $14 million hit in the Q3 versus your expectations, does that mean that you over-earned by $14 million also in the second quarter in VP&D?

I mean, the share didn't happen overnight on some of things. So, you got to look at we took pricing actions. I mean, it's not just to defend what we had. Also, there was other puts and takes. So, it's not just, carry it back. I mean, some of these things we talked about actually last quarter about share in VP&D. I think the issue is more the outlook now. It has been more aggressive than we had expected and that's the part that we're taking action on.

I think also, Jeff, just for clarity, the $14 million is a sales number, not an EBITDA number for the quarter.

Oh, it's not an EBITDA. because I thought it was an EBITDA number, because I think earlier, you said your original guide was $470 million to $500 million, and then $465 million to $475 million. And so, when you bridge that, there's a $15 million reduction in the midpoint of EBITDA, and I thought that you guys had described that change to the…

Yes. I think the $14 million is more of a Q3 comment. As we look at the full year, the impact of the $15 million EBITDA decline is related not only to pharma, but the fact that Specialty Additives while still growing isn't going to grow most likely as much as we expected it to. And so, it's really a combination of those -- of the impact of that in each of those businesses. That's where the $15 million comes from.

Okay. Thanks so much.

Sure.

Thank you. Our next question comes from John Roberts of Mizuho. Your line is open.

Thank you. I think you reported that internal BDO consumption volume is down 14%. Majority of that would be for VP&D, I think. And so -- and that would be down more than 14%. Is that another way to size this?

So, the bonds are down. Yes. The internal consumption is mostly into the VP&D business, goes into pharma, but also Personal Care and Specialty Additives. So, we do sell products in other areas, but obviously pharma is the big the bigger volume. Now, the actual volumes, it's an issue of both demand, but also of how we manage our inventories. So, it's not a direct 14%. You can't put it just to the sales. There's also how we manage the inventories. And I do want to note, I mean, because we had this question of -- in the last call, we saw more risk on the revenue side than on the EBITDA side, because of manufacturing. But I do want to point out, we have not built inventory to the level, that we're not inventories are under control. We do not want to play. We're managing our balance sheet and we're managing that prudently. So, in BDO specifically, that's something that's a big inventory area for us. So, we manage that and we're trying to manage it prudently.

And then is the only action that you're taking in Vp&d price or is there going to be some cost-saving program or rationalization actions as well?

So, I would say there's different things we're doing. Price obviously is one, mix, which products we position to against competitors. We're not trying to match a premium product versus a commodity product. So, we're managing the mix. But as I said, the big area is that we're taking actions on cost, productivity, we're looking across our entire chain around the two plants that we have in Calvert City and Texas City. So, there's a lot of work that's going on there, more to come, but that's a big area. The environments change and we need to take action also in-house to make sure that we strengthen our business as market leaders. We want to make sure that we're in that leadership position both on quality, on reliability, but also on cost.

Thank you.

Thank you. And our next question comes from Josh Spector of UBS. Your line is open.

Yes. hi, good morning. I had a few questions on volumes that I'll kind of combine here in one. So, if I understand your guidance correctly for Q4, I think Kevin said mid-single-digit percent volume growth that obviously includes the headwind from VP&D. I think that excluded the volume exits, but correct me if I'm wrong. So that's 5% or so growth in profit producing volumes. I guess, if we look over the next year, you have a couple quarters of that to go, so maybe no demand growth, your volumes grow 2%, 3% against profit producing volumes. I guess, one, is that a reasonable starting point to think about? And then two, some of these other things that you've talked about over the last couple of years, so specific new capacity investments, you talked about some new wins a couple of years ago. We haven't really seen that. And then two, the new product pipeline you've talked about, do you expect that to be additive on top of that base rate and what we see that next year, or would that take a lot longer to materialize?

So, let me just make a point and then I'll ask Kevin to comment on the volume in the guidance. We have not taken out the nutraceutical numbers yet, because we don't know exactly the closing. We believe it's before the end of the year. So that's the one that I would say has not been removed. So, we close a deal sooner, we'll let you know and then we can adjust the guidance appropriately. And Kevin, you can answer after -- for the other questions on innovation and growth. All the growth, if you look at our globalized, as we said, it's growing much higher than the rest of the portfolio. Those have much higher gross profit margins than our average different cost structures. Even there, we're trying to even optimize the cost, the margins and cost structure produce locally, moving these are asset light type businesses. It's about being closer to the markets and adding more service and supply flexibility in region. So, all those are growing and all those are, so it's 10% of our portfolio. We want to grow it at double digits and at higher margins, and we're getting that momentum. On the innovation side, we've introduced a lot of products. I would say if you look at the last few years of big innovations, the majority of things we've introduced in is in Personal Care. The good news for us, some of the things we introduced as I said in the prepared remarks like the TBO, we're getting -- starting to get momentum. We'll show that when we do our Investor Day. But getting the registration, for example, in personal care to sell it in China is very important. because even the further global houses, they require to be able to use their brands…

And Josh, on the volume growth, I mean, what we would expect for Q4 on an overall basis is mid-single-digit organic volume growth. So, setting the optimization work aside. And that's what's baked into the outlook that we've given. Again, I think originally, our expectations would have been a bit higher than that, hence the change in the outlook. But as we look at fiscal ‘25, I mean, as Guillermo said, we're really not prepared to talk a lot about that. We'll say a lot more on the Q4 earnings call when that one happens. I think just to reiterate, in terms of the Q1, Q2 piece of the equation, returning to more typical results in Q1, Q2 versus what we saw in fiscal 24. That's a combination of two things. Number one, and probably the I'd say, the larger item would be it's running our plants at more typical levels in Q1 and Q2, as opposed to what we did in Q1 and Q2 of fiscal ‘24. But there is also a volume impact to that and that's probably a little more pronounced in even Q2 than it is in Q1. So, it's a mix of the two things. So, what I would say is that as part of that return to more typical Q1 and Q2 results, it’s a combination of running the plants at more normal levels. and it's -- let's call it primarily that, but it's also -- but there's also an expectation of normalized volume or more typical volume included in that without any expectations around year-over-year growth per se or market growth. Again, as we get into the Q4 earnings call and we start to talk about fiscal ‘25 on that call, we'll give a lot more specificity, I would say, particularly around the impact of the exits. I think there is a fair bit of confusion around what that's going to mean for fiscal ‘25. And our plan is to provide more granularity around that when we do our Q4 earnings call just to help people level set around what we expect that to look like based on the actions that we've taken in fiscal ‘24 and the outcomes of those actions. So, I would say more to come on that. but that's the best way to think about at least Q1 and Q2 for the time being, and it's included in that overall reset number that we that we've been talking about.

Okay. Thank you.

Thank you. I'm showing no further questions at this time. I'd like to turn it back to Guillermo Novo for closing remarks.

I want to thank everybody for your participation and interest. Looking forward to connect with all of you. I just want to reiterate although a tough environment in the external, I think, the team has been doing very well on the core things. We have some specific issues that had a big impact. We're working through that. I think it's manageable and it's specific, rather than broad-based. So, we'll be managing and updating you on those activities. But I look forward to also sending you more communication on our Investor Day in December and we look forward to seeing you soon. Thank you so much.

This concludes today's conference call. Thank you for participating and you may now disconnect.