Good morning, ladies and gentlemen, and welcome to the Avient Corporation's webcast to discuss the company's second quarter 2023 results. My name is Katherine, and I'll be your operator for today. At this time, all participants are in a listen-only mode. We will have a question-and-answer session following the company's prepared remarks.

As a reminder, this conference is being recorded for replay purposes. I would now turn the call over to Giuseppe “Joe” Di Salvo, Vice President, Treasurer and Investor Relations. Please proceed. .

Thank you, Katherine, and good morning to everyone joining us on the call today. Before beginning, we'd like to remind you that statements made during this webcast may be considered forward-looking statements. Forward-looking statements with the current expectations or forecasts of future events are not guarantees of future performance.

based on management's expectation and involve a number of business risks and uncertainties, any of which could cause actual results to differ materially from those expressed in or implied by the forward-looking statements. Please refer to investor presentation for this webcast for a number of factors that could cause actual results.

During the discussion today, the company will use both GAAP and non-GAAP financial measures. Please refer to the presentation posted on the Avon website, where the describes the non-GAAP measures will provide a reconciliation to their most comparable GAAP financial measures.

Joining me today is our Chairman, President and Chief Executive Officer, Bob Patterson; and Senior Vice President and Chief Financial Officer, Jamie Beggs. Now I will hand the call off to Bob to begin. .

Thanks, Joe, and good morning. Today, we reported our second quarter results. Adjusted EPS of $0.63 exceeded our guidance driven by better-than-projected margins in both segments. Raw material deflation was a net positive, and our composites portfolio continues to be resilient in an otherwise challenging environment.

Composites is an area that we have grown through a series of acquisitions and incremental commercial investment and now makes up about 20% of our business. deposits offer a lightweight option with strength and design flexibility and other materials simply cannot.

Since 2012, we invested in 6 technologies to build out this portfolio that now includes long fiber tapes, laminates, pultrusion and engineered fibers. Our goal has been to acquire businesses where we can add commercial resources to drive growth.

Specifically, in end markets and applications that are underserved or not served at all by composite players today. From a performance standpoint, our composite businesses are holding up well in the current economic downturn. -- and EMA is the latest addition to our portfolio and couldn't have come at a more important time.

It's the world's strongest fiber and utilized in defense and other end markets for failure is simply not an option. Year-to-date demand for personal protection is up 13% and expected to increase as the year progresses. 85% of our composite materials serve the following 5 end markets.

personal protection or defense applications include BODYARMOR and helmets that rely on Dynamic fiber and its unrivaled performance. lightweight and high-strength combination provide the highest level of protection for women and men in the military and law enforcement while also allowing for ease of physical movement.

The industrial end market -- we're certainly passed and there are many opportunities to leverage the benefit of composites.

Composite tapes are reinforcing flat pressure pipes being used for conveyor springs to be preplaced more durable materials deposit provides significant performance benefits in lifting slings -- they can also be tailor-made to deliver strength and stiffness in specific directions or certain areas depending on use.

-- line with being resistant to corrosion, chemical and environmental exposures, there really is linerless possibilities in this end market. In our acquisition of fiber line in 2019 and expanded our solutions into the fiber optic cable and telecom industry. We've since been serving the 4G and more recently, 5G infrastructure buildouts.

The most recognized the value of 5G simply as speed -- but it's really about connectivity. 5G can power the development of smart cities, remote surgeries and autonomous driving vehicles. sustainability benefits like process automation, production of waste and greater control over water management are also being enabled by this technology.

Private wireless networks and manufacturing facilities and warehouses rely on 5G as well to meet the emerging technical requirements of AI, automated and high-tech production. As you all know, China was an early mover in 5G infrastructure with nearly 3 billion base stations and growing.

In the U.S., with the upcoming deployment of funding from the bead program, it will greatly accelerate 5G and Avian is well positioned to take advantage. In the energy end market, there has been an increased focus around the world to improve the capacity and reliability of the energy grid, while also expanding more sustainable energy sources.

We serve customers that support the traditional electrical infrastructure with components such as primary and secondary insulators distribution and transmission poles across arms. These updates often replace materials such as wood and steel.

And for offshore wind farms, Dynamica Ropes and Mooring Lines are considered the best option for positioning and anchoring windmills. For all modes of transportation, customers are looking to use composites to increase fuel efficiency and battery applications.

Recent examples you may not be as familiar with include air cargo panels, railcar doors and laminates to protect the undersized truck bed for us. And what I love about these applications is that they serve as perfect examples of how we have taken composites to these new and underserved markets I previously referenced.

In winning new business in these areas has helped us to navigate, the challenging market conditions that we find ourselves in this year. In that regard, our message today about Q2 and the remainder of the year is really about improving margins. Offsetting weaker demand conditions, this is both from better mix and cost reductions.

And Jamie is going to tell you more now, and then I'll have some concluding remarks. .

Thanks, Bob. Second quarter adjusted EBITDA of $131 million came in slightly ahead of our forecast as lower sales, particularly in Europe, were offset by stronger margins. Adjusted EPS was $0.03 better than expected, driven by the EBITDA beat as well as lower interest expense and depreciation expense.

Adjusted EBITDA margins exceeded guidance by 50 basis points, that sustainable solutions and composites continue to prove reliant in the current environment and provide a favorable mix in the quarter. Deflating raw material prices, along with our ongoing cost reduction initiatives also factored into the margin improvement.

The second quarter EBITDA bridge shown here walks the impact of demand, price and cost on a year-over-year basis. Starting with demand, customers remain cautious and continue to closely manage inventory levels. Overall demand was slightly below our expectations and regional trends have evolved since we last spoke. The U.S.

and Canada went about as expected with softness across most end markets, particularly in building and construction and consumer. Latin America's demand was slightly worse, but most notably, we saw Europe weakened further, which we thought going into the quarter had stabilized.

This was partially offset by a slight uptick in Asia, which was modestly better than expected. Also highlighted on this bridge is the impact of pricing and deflation. This is the first quarter we've seen raw material deflation on a year-over-year basis.

Deflation was most prevalent in our hydrocarbon input such as polyethylene and polypropylene, and we have started to see moderation in other raw materials, such as certain performance additives. It along with price, continues to help us offset weaker demand and cover wage and energy inflation, which remain elevated versus the prior year.

Lastly, certain cost reduction activities, including targeted European restructuring and reduced discretionary spend, provided a $13 million benefit to the bottom line in this quarter. Turning to Page 10 in the webcast slides, we provide another view on sales.

This time on a sequential basis from Q1 to Q2 by region, where sales on a global basis are 2.6% lower.

In Europe, where we typically see an increase in packaging as our customers prepare for the summer vacation months, but that didn't come to fruition as persistent inflation had a negative impact on consumer sentiment, and/or some level of destocking remains. Customers in Europe continue to be the most cautious of any region.

As we look around the rest of the world, demand in the Americas was largely unchanged from the first quarter. The U.S. consumer has been quite resilient, but we expect weaker demand to continue in the second half. In Asia, we experienced modest improvements in the second quarter with China reopening and recovering from the COVID's lockdown last year.

We hope this remains a positive trend going forward. As we mentioned during our first quarter call, ordering patterns touched in smaller quantities and shorter lead times. This is true even in traditionally recession-resistant markets like packaging and health care.

In fact, health care has been surprisingly and negatively impacted more than anticipated in terms of demand this year. Historically, this is among the more recession-resistant market. It seems even health care device manufacturers just like manufacturers and other industries, still have too much inventory on hand.

In the first half of the year, major companies like Beck and Dickinson, ICU and Teleflex, all point reducing inventories this year. Further, rising interest rates continue to have a negative impact on consumer applications and building and construction.

Partially offsetting the impact of the MAB environment is the resilient nature of our Composites business, serving the end markets that Bob highlighted earlier. We have factored all of this into our guidance projections for the balance of the year. Third quarter guidance is for revenue of $800 million and adjusted EPS of $0.56.

This reflects our current view of demand and higher margins based on the strength in composites, raw material deflation and cost reductions. We are maintaining our full year guidance of adjusted EPS of $2.40 and on lower revenues of $3.3 billion.

While we have slightly lowered our full year adjusted EBITDA projection, this is offset by lower interest and depreciation expense. We have been consistent all year in saying that we believe that demand conditions weakened beyond our initial model that we would be able to offset that with strength in composites, improving margins and cost reductions.

And that's exactly what we've done so far. With respect to expected cash generation and leverage, we are updating our full year free cash flow to $180 million to include additional costs related to environmental remediation expenditures and timing of tax payments. Projected net leverage at year-end is 3x.

I'll now hand the call back over to Bob for some closing remarks. .

Thanks, Jamie. At our Investor Day in 2021, we highlighted 4 key long-term growth drivers where we focus our investments. Their sustainable solutions, health care composites and high-growth regions such as Asia and Latin America. These 4 areas make up over 60% of our sales today and where we expect to provide long-term revenue growth above GDP.

The largest of these is sustainable solutions, which has grown at 11% and compound annual growth rate since 2016. Great examples of those solutions are highlighted in our latest sustainability report just released and available on our website.

It's a comprehensive publication that provides our many stakeholders, important updates on ESG matters that are important to them to us and to our planet. In our report, we have provided updated metrics and highlights for each of our 4 pillars of sustainability, people, product, planet and performance.

When it comes to products and performance, a third of our revenue now comes from this portfolio. You'll read about how our customers are using these technologies to meet their sustainability goals. Included in the report we showcased several customer case studies, like Dynema-enabling sustainable infrastructure.

And like our work with L’Oréal where we have helped them incorporate recycled content into their packaging, all while maintaining the performance and color integrity of this leading global brand supporting our planned objectives, you see our progress towards our internal goals of reducing waste to landfill and energy intensity, increasing our use of renewable energy sources and more but you will also see how our products help our customers achieve similar objectives.

And at Avient this is all made possible by our people. In this section of our report, you'll see why. We are increasing our investments in training and leadership development at all levels of the company. Employee resource groups are expanding their outreach, helping to further strengthen our culture of diversity, inclusion and performance.

And it's a culture that last year was certified again, is a great place to work. In fact, last year, we achieved the highest employee engagement scores ever. And we did so in the midst of tremendous change at our company. and really the beginning of a global economic downturn.

I encourage you all to read our report and better understand in many ways we are leading and investing in sustainability. I'm serious. This is the most comprehensive report that one place highlights who we are and what we do. And we frequently get questions about how customers are viewing sustainability in light of the current economy and environment.

This much is clear they are still committed. Brand owners have established ambitious sustainability goals on a range of topics across the ESG spectrum. -- it is committed to these goals internally and publicly and are working hard to achieve them.

Two common objectives where they are seeking help from us are increasing the use of recycled content and lower in carbon emissions. -- and our material science directly facilitates both lightweighting, reducing material consumption, improving performance and coloration of post-consumer recycled content to name a few. It's truly inspiring work.

It's a core area of investment and growth for us. How and where we are having success warrant some focused time to fully appreciate, which is why we will be holding virtual Sustainability Day for investors on September 20. Our sustainability today, we will provide a deeper look into our growing portfolio.

We also hear about the consumer trends and customer sustainability goals that are shaping and driving our innovation. Sustainability is here to stay. The stakeholders are driving demand for sustainable products and from sustainable companies like us.

In closing, and with respect to our prior guidance, I'll reiterate what Jamie said and that we have been consistent all year in saying demand conditions were uncertain. -- they were weaker than we initially projected we could offset that with cost reductions and better margins. So far, that has certainly been the case.

We acknowledge that near-term challenges persist. -- but I think there should be a growing sense of optimism. From a macro perspective, it is beginning to look like the U.S. rate of motivation is declining. -- and destocking should begin to moderate in many industries.

But it also seems less likely that recessionary conditions will spread beyond the manufacturing sector. Specific to us and to repeat what I previously said, the Dynema acquisition couldn't have come at a more important time as demand for defense and sustainable infrastructure applications and momentum.

When combined with our other cost technologies, we are well positioned to take advantage, recently announced government-sponsored initiatives, such as the broadband equity access and deployment program. could really take hold in 2024 and increased demand for our applications in fire to cable.

The same is true for the inflation Reduction Act, which could translate into increased demand for applications that helped to secure existing energy structure as well as build new renewable energy sources. In short, I'm very confident with the portfolio we have made the last few years to position us long-term growth.

We don't plan to cover the prices today, but on our website. We have refreshed our peer churns. -- and believe we are on the right path to being valued as a specialty formulator. Thank you for listening today. We'd be happy to open the line for any questions. .

Thank you. [Operator Instructions]. First question comes from Frank Mitch with Fermium research. Your line is open..

Thank you so much, and good morning, everyone. I have to ask the obligatory question. You're keeping your guide for the full year. Obviously, you've exceeded your bogeys in Q1 and in Q2, so that's a de facto cut to the second half of the year.

So Bob, are you suggesting that your thoughts when you first put out the full year guide, you had a certain expectation on how the second half would play out. And as you sit here today, it's moderately worse than that? Or are we -- we still have a couple of quarters to go when there's some measure of conservatism, that's factored in. .

Yeah. I mean, I guess the best way to describe at the beginning of the year is we didn't have real good visibility to what the second half would look like.

And I don't know just the best way to convey that was that if demand conditions weakened further from what we initially projected, we would be able to offset that, particularly, if we experience raw material deflation, which we now are.

So I think as we stand here sort of in the middle of the year, we've just got a better perspective on what the numbers are going to look like for the balance of the year. And that's really what shapes our guidance. I hope that helps. .

Got you. So yes, belt-and-suspenders. As I think about Europe, the tenor, the tone is it seems a bit more negative than perhaps we might have thought 3 months, 6 months ago, and so forth. Your sales declines at down 10% 1Q, down 8% in 2Q, at least that's kind of moderating somewhat, but it's still materially negative year-over-year.

How close are we to bottom? When might we hit bottom in that region? Or it's still fairly murky?.

Maybe a clarifying point on that, if I could first just with the numbers that you cited that slide that Jamie presented today was actually a change from Q1 to Q2. So slightly different [indiscernible]. Europe got worse, right? Just to be clear.

And that you know, I think if you went back to our last call, we're probably more optimistic about Europe sort of reaching bottom, and that didn't prove to be the case.

You know Jamie really specifically highlighted some things that have historically happened in the summer months, we respect to demand for additives for packaging primarily around food and beverage, and that really didn't materialize in the second quarter like we thought. So I guess I would put Europe in the sort of negative surprise category. .

Understood.

And so no scope for at least you’re looking at it right now, you're not banking on any sort of recovery in the back half of ’23?.

I think things could be bottoming out, but not necessarily recovering. So maybe that's the right way to think about that..

All right. Very helpful. Thank you so much..

Sure thing..

Thank you. One moment for our next question. Our next question comes from Michael Sison with Wells Fargo. Your line is open..

Hey, good morning guys. Nice quarter. Your volumes have been down 6 quarters, and I think you felt there would be a binding effect.

What do you think volumes will be down in the third quarter? And how do you think things shape up as you end the year in the fourth?.

I mean, look, the current guidance has sales down about 9.5% in Q3. The preponderance of that really is demand or volume related. There's a little bit of positive, I think, on FX year-over-year, but maybe a little [indiscernible] FX. But when you look at Q3, Mike, and that projection that we have on sales, that is really primarily underlying demand. .

Got it.

And then in terms of deflation, when you look at the second half, what type of level deflation do think you're going to see?.

Yeah. So one way to actually think about that is if you look at the changes to our guidance, we took $60 million of sales out of the third quarter, but really only changed EBITDA by about 10. So that kind of gives you a sense for order of magnitude of what we see as incremental benefit from price and raw material deflation.

So hopefully, that kind of helps you. And with the bridge schedule that we have for second quarter, you can probably move to Q3 and Q4 and starting to put that together..

Got it. Thank you..

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

Hi, good morning. Let ask about Asia. You noted that things there were stronger than you expected. That doesn't really seem to be what the headlines are saying in a lot of companies are kind of talking about this muted pace of recovery.

What markets were leading the strength that you saw in Asia? And do you expect that momentum to accelerate in the second half given that there's maybe some government stimulus going on in China?.

I mean I think we would read with some of the headline observation that the recovery has not been as significant or to the extent that people may have hoped for as a result of reopening from covid lockdowns -- but it was still better to go in Q1 to Q2, and that's also a good thing.

I think that there was, in general, demand for personal products, consumer and packaging. Packaging is one of the largest markets we have there as well as products that are getting distributed back into the U.S. and Europe. And I think I forgot to answer part about the second half of the year.

I think one of the things that -- I don't know if we mentioned this on the last call or not, but we are starting to see an uptick in customer requests for new color designs. And that usually is a pretty good leading indicator that there's positive momentum. So hopefully, that does continue in the second half of the year. .

All right. Great. And then I was hoping that if you could give us an update on what you're seeing in the packaging market. I think you read some softness that's going on in Europe there. But that's where you have some interesting sustainable solutions.

The weakness that you are seeing there, is that really related more to destocking or slowing consumer demand, I guess, maybe just hoping that there are signs that demand is starting to stabilize in that important market for you guys?.

Yes. I mean, look, I think that it is still a growth. Maybe just to specifically talk about Europe, where packaging the largest segment. I do consumer sentiment is impacting what they're spending money on right now. Inflation obviously has dramatically increased the cost of food and beverage prices.

And so, I think there, that there certainly is a consumer impact to demand. Beyond that, I think it's probably still some destocking at least with what we saw in the second quarter, but possibly some belt tightening in other places the world as well. .

All right. Thanks very much..

Thank you. Our next question comes from David Wong with Deutsche Bank. Your line is open..

Hi. Good morning. Just on pricing, I know price mix was up a bit in the quarter and mix was positive. Does that mean pricing by itself was negative in the quarter? And as I mentioned last quarter, there were some competitive dynamics there.

Do you expect any further price declines in the back half?.

Price was a positive for the quarter. That's pretty much what's in there. And then I think what we've been saying is that -- if you went back to last year, pricing really probably peaked at the end of the second quarter, maybe a little bit in the beginning of the third. So our expectation is that pricing to sort of decline over the course of the year.

So I think you'll see that in the second half. It could be flat. I think that's probably a good estimate to use right now for Q3 and 4. .

Okay.

And house reduction, how much was the benefit in the quarter as you strip out Claren synergies? And I guess, how should we think about additional cost savings in the back half?.

Clariant synergies was really a small number in that 13%, it was about 2. And like -- by the end of last year, I think we were at about $75-76 million of the run rate we expected, $85 million in total, so we're pretty much there. So I put that in.

The balance of that really was other cost actions, some related to European restring and some reduced personnel Q - David Wong Okay. Thanks.

Thank you. And our next question comes from Laurence Alexander with Jefferies. Your line is open..

Good morning. Just a couple of different odds and enza.

First, with Dynama can you give a sense for where the margins and volumes are compared to where you thought you'd be when you first -- when you closed the acquisition?.

So maybe I'll just do this by -- so remember, 50% of the business is personal protection. About 30% of that's Marine in sustainable infrastructure and 20% is consumer. And personal protection, I think your question was about versus expectations.

So obviously, when we did this deal last year, we had an expectation that personal protection would start to pick up as demand for defense applications increased, and that is happening.

I would say that's probably even higher at the beginning of this year than what we thought consumer is down significantly in the same way that the other Avian markets are. I'm not sure that's too much different than what we thought or what we know now just based on of what we're seeing in consumer.

And marine and sustainable infrastructure has also come some, so that's possibly a slightly different change than we thought, and I think that is just what's going on in general in the industry today.

But anyway, the whole business is really holding up well and margins are as good as they have been in the past, and there's really no commentary there on margins to provide vis-a-vis stations. .

Okay. Great.

On the destocking side, what are you hearing from customers in terms of kind of where they think equilibrium will be in terms of, like, do you expect to sort of push inventories lower than maybe desired and then have a snap back sort of later on or kind of is everybody just trying to find a new equilibrium, which they can live with? Can you give us a sense for the flavor of the discussions, what they're warning you they mind?.

Yes. I mean I really do think it does vary by industry. And I would say that in the consumer space, I feel like that is one space that is actually starting to improve, meaning, I think, less destocking.

I would compare and contrast that to health care, which actually was down, I think, the second highest of NEM market that we had in the quarter and health care companies are still telegraphing that they see more destocking to come.

And I think that health care really did out of an abundance of caution for taking care of people during the COVID era and supply chain issues over the course of '21 into '22, they simply did have too much inventory on hand. And I think they're all really working to bring that down. I think Jamie mentioned that.

I mean that was a negative surprise for us this year because health care is typically resilient. I think if it weren't for their destocking, it would be. I don't really think consumers have really changed their health care patterns this year.

So, I look at health care and say I think that's the preference of destocking, and that's going to continue through the rest of this year. .

And then just lastly, just with the kind of performance you've seen on price mix versus cost. And also, kind of how your productivity has been offsetting your wage inflation and energy.

How do you think this plays out over 5, 7 years? Is there an upper limit persons should the cost price cost delta narrow over time? Can you just give a sense of the new dynamic for Avian compared to kind of the predecessor assets, and you've talked about quite a bit over the last couple of years, but can you give us a sense for where you see kind of those limits or the trajectory?.

I mean, look, I think we're at the beginning of a positive trajectory with respect to margins. And if I look at how much they compressed in 2020 and '21 and then into '22 because of inflation, that's an opportunity for that to reverse itself with deflation and hanging on to price.

We have long said that our goal is ultimately to get EBITDA margins to 20% if we simply got back to where we were on a pro forma basis in the middle of '22, that's about just under 1%, and then I think with improving mix in the 4 key growth areas, we can get to 20. So, I don't feel at all like we're getting to limit.

I feel like we're at the beginning of getting to where we want to get to, which is closer to 20%..

Thank you..

Thank you. next question. We have a question from Kristen Owen from Oppenheimer. .

And all of the incremental color that you provided. I wanted to ask a little bit about the comment you made about the shorter order time lines, maybe some smaller orders and just ask you to expand on that a little bit how that is impacting your planning horizon, what that means from a perspective for Aviat. And then I'll have a follow-up. .

The one thing that it impacts more than anything else is just our facility to performance. And I have always said that based on orders, order patterns, we had pretty good ability for the upcoming month, maybe 45 days. And I feel like that's been cutting up with respect to shorter or pure lead time and also smaller quantities.

So that's just made it more difficult for us to project what's going to happen in the short term. Lot of ancillary issues with that with production scheduling and planning and so on. But that was really a big impact. It's just effectively how we plan for running the business. .

That's helpful. And then sort of tying that into some of the longer-term discussions about sustainable solutions and sort of customer timeline for those solutions seem like very different types of conversations.

So if you could just help us understand what the tenor of the sustainable solutions conversations are? How those have trended just given their it?.

Yes. I mean, that's an important part of what we want to share in September 20 is that, look, the brand owners are still very keenly focused on achieving their sustainability goals. And I really feel like the level of engagement with them is still very high.

So despite destocking and generally what's going on with the manufacturing sector right now, I don't feel it's an for us a good thing. Some of those things are longer lead time projects. They really are development projects and innovation. And I think it says a lot.

Look, if you look at the colors, I mean 100% of our innovation portfolio is dedicated to Civil solutions. 100%, right? So I mean that just tells you how important that is. .

If I could sneak in one final follow-up to that last bit and sort of tying into the previous question.

What does that mean in terms of your pricing ability sort of over this longer term horizon? I mean, is there a form what you anticipate to capture from those sustainable solutions on the pricing side?.

Yes. I mean, one, I think there's value to be had there from a pricing standpoint, but I would also tell you that there's a cost aspect of that.

And right now, sustainable solutions oftentimes have a higher level of cost is based on the recycled content and/or the additional additives and so on, to help get those colors that the brand owners are looking for. So -- in general, I would just say that, that pricing will continue to move forward and up, I think, as stainable solutions grow. .

We have a question from Vincent Andrews with Morgan Stanley. Your line is open..

Wondering if you could talk about cash flow. -- looks like with EBITDA down $5 million. Cash flow from operations is now $33 million and $360 million and free cash flow is going to be $10 million instead of $200 million. I see on the balance sheet or cash flow statement that working capital or inventory in particular, is up.

But can you just help us understand what's going on from a cash flow perspective and what at you're putting into place to try to improve this situation?.

I mean, I guess, really, the primary changes from our previous guidance really related to some environmental expenditures and timing of tax payments. I not sure what working capital information you're looking at. But in general, our working capital as a percentage of sales is actually decline this year versus last year.

We've done a really good job of managing inventories. One of the things that you just have to look at with respect to cash flow and working capital is just the timing of when those things happen. We had a pretty significant influx of cash in November and December of last year. And that obviously factors into a percentage of sales.

We don't have the same thing built into this year. So that might help you when you compare and contrast ‘23 versus ‘22..

Yes. I was looking at the increase in inventory. But anyway, and as a follow-up, -- where do you think your customers are? I mean I know you talked about the health care situation. They were overstock just sort of as a function of COVID and so forth.

But do you think customers in general are now at very lean levels -- because I know, obviously, there's a lot going on with interest rates and just broader macro concerns.

But do you think that they're at sort of levels where you just can't go on that much more so that when we get to 4Q, we maybe won't see the same level of seasonality that we typically would see. I think that's still a risk in the fourth quarter. .

I mean I think that is part of our assumption is that we don't see the level of seasonality. I mean, if you look at our revenue projection for the fourth quarter, it's not that much higher than what it was last year, but it was significantly below where it's been for the last 2 to 3 years. So I think you're right on with that assumption.

I think it does vary by industry. I think in the outdoor space, which is one that we've talked about a lot, I actually think that there are some green shoots in that that will start here in the second half of this year, we're seeing a little bit of that dealer and retail inventory is very low still. So I mean, that tells you maybe that is lean.

But -- and then in other industries like health care, we said that apparently with what our customers are saying, both in to us, their inventory levels are not lean, and so we see further destocking there. Thank you very much for the questions and for everyone listening in today. Hopefully, you can make it to our sustainable day on September 20.

We look forward to updating you in that regard on that day. .

Thank you. .

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