Element Solutions Inc

NYSE:ESI

Earnings Call Transcript 2022-Q3

[Operator]

Ladies and gentlemen, good morning. My name is Abby, and I will be your conference operator today. At this time, I would like to welcome everyone to the Element Solutions Inc. Third Quarter 2022 Financial Results Conference Call. Today's conference is being recorded. [Operator Instructions]

Thank you. And I will now turn the conference over to Varun Gokarn, Senior Director, Strategy and Finance. You may begin.

[Varun Gokarn, Senior Director, Strategy and Finance]

Good morning, and thank you for participating in our third quarter 2022 earnings conference call. Joining me are our CEO, Ben Gliklich; and CFO, Carey Dorman. In accordance with Regulation FD, we are webcasting this conference call. A replay will be made available in the Investors section of the company's website shortly after the completion of the call.

During today's call, we will make certain forward-looking statements that reflect our current views about the company's future performance and financial results. These statements are based on assumptions and expectations of future events that are subject to risks and uncertainties. Please refer to our earnings release, supplemental slides and most recent SEC filings for a discussion of material risk factors that could cause actual results to differ from our expectations. These materials can be found on the company's website in the Investors section under News and Events.

Today's materials also include financial information that has not been prepared in accordance with U.S. GAAP. Please refer to the earnings release and supplemental slides for definitions and reconciliations of these non-GAAP measures to comparable GAAP financial measures.

It is now my pleasure to introduce Ben Gliklich, CEO of Element Solutions.

[Benjamin Gliklich, CEO]

Thank you, Varun, and good morning, everyone. Thank you for joining.

In the third quarter, Element Solutions produced solid top and bottom line organic growth despite an environment where macro fundamentals declined. Key end markets such as consumer electronics and mobile phones softened further. Automotive did not recover in line with expectations and the continued strength of the USD drove additional foreign exchange translation headwinds. Despite these challenges, both of our operating segments delivered organic growth in the mid-single digits as pricing actions, new business wins and a focus on high-growth electronics applications helped to offset declining volumes. This is a significant outperformance against our end markets.

On the bottom line, cost management from synergies and actions taken in the quarter contributed to sequential margin expansion and adjusted EBITDA growth.

Demand across the electronics ecosystem deteriorated in the third quarter and the typical seasonal pattern of sequential growth from Q2 to Q3 did not materialize. In September, European activity levels did not ramp following August holidays. Global handset volumes declined an estimated 12% year-over-year in the third quarter, a deceleration from a 7% year-over-year decline in the second quarter.

What started earlier in 2022 as weak demand in the local Chinese market where we have more limited exposure has penetrated demand for ex-China mobile OEMs. While we expect to see continued robust growth in our Power Electronics portfolio and the benefits of pricing actions we took earlier in the year, our outlook for the rest of 2022 across the Electronics portfolio is for current trends to continue. Secular growth is not linear, and we believe the current trend is not reflective of any permanent change in the industry.

The growth opportunities we have in Power Electronics, 5G-enabled devices and networks and sustainable chemistry are substantial over time. We are not slowing our investment in these longer-term growth opportunities.

In our Industrial portfolio, Automotive is our largest exposure, we see a structurally undersupplied global market where production recovery is more a question of timing than magnitude. OEMs continue to miss their forecast production rates given supply constraints. However, given economic softness, particularly in Europe, we believe that the recovery will occur over a longer time frame than was previously forecasted. While unit production improved sequentially in Q3, the recovery was subdued relative to industry expectations.

Here too, the long-term trend appears positive as reflected in the elevated levels of customer engagement and new business wins our commercial teams have closed year-to-date. We're well positioned as a leading technology-enabler for the Automotive supply chain and expect to benefit disproportionately when production volumes inevitably recover.

Even with a modest recovery in Q4 2022, the Automotive production from this year will end more than 15% below 2018 levels.

On Slide 3, you can see a summary of our third quarter financial results. We grew the top line 5% organically. A significant portion of that organic growth was driven by both surcharge-based and negotiated price increases. On a constant-currency basis, adjusted EBITDA grew 11% year-on-year. Adjusted EBITDA margin improved 40 basis points with lower pass-through metal prices driving roughly 60 basis points of margin tailwind year-over-year. The steep and fast decline in tin prices midyear left us with purchases well above our eventual selling price. This had a negative impact on gross profit in the quarter but the losses were largely offset by metal hedge gains captured in adjusted EBITDA. This is how our metals pricing and our hedging program are designed to work.

Foreign exchange fluctuations drove sizable reductions to our earnings in the quarter, representing a roughly $12 million year-on-year headwind to adjusted EBITDA. Excluding the impact of $93 million of pass-through metal sales in our Assembly Solutions business, our adjusted EBITDA margin would have been 25% in the quarter. Adjusted EPS grew 6% on a reported basis despite a negative 9% impact from FX translation.

Carey will now take you through our third quarter business results in more detail. Carey?

[Carey Dorman, CFO]

Thanks, Ben, and good morning, everyone.

On Slide 4, we share additional detail on the drivers of organic net sales growth in our 2 segments. Organic growth for Electronics was 5% year-over-year in the third quarter as pricing and growth in Power Electronics generally offset Consumer Electronics softness in Asia. This compares favorably to the overall Electronics and mobile end markets that were down in the low single digit and low double digits, respectively, year-over-year.

Our Circuitry Solutions vertical grew 1% organically, with price actions offsetting a sharp slowdown in the memory disk market as well as slow customer activity throughout Asia. Semiconductor Solutions grew 3% organically, and the business saw continued end-market demand for our wafer plating, advanced packaging and advanced assembly products. This was tempered, however, by softer demand in mobile. Both Circuitry and Semiconductor benefited from higher surcharge revenue, driven by increases in raw material costs, which account for roughly 2% of the organic growth in the overall Electronics segment. In our Assembly business, we saw sustained growth in higher-end applications, which drove a 9% increase in organic sales.

On a year-over-year basis, adjusted EBITDA margins in our Electronics segment expanded 20 basis points. Power metal prices had a positive year-over-year impact to margins. At the same time, gross profit dollars were negatively impacted by the timing of sharp declines in tin prices within the quarter. The offset to this was over $5 million of realized metal hedge gains that are reported through other income and are included in our adjusted EBITDA. Product mix was also a headwind in Assembly growing faster than Circuitry and Semiconductor in the quarter.

Organic net sales in Industrial & Specialty increased 6% year-over-year. The growth trends diverged across the 3 businesses within the segment. Industrial Solutions grew 7% organically, which was driven primarily by pricing actions and surcharges. Jumping to Auto, which is roughly 40% of the business, grew mid-single digits. We also saw some sequential softening in European Construction and Industrial end markets that has been resilient in the first half of the year. We anticipate this trend will likely continue into the fourth quarter, given the dynamics in the region.

Graphic Solutions declined 3% organically year-over-year. Despite new business that contributed to sales and the impact of additional pricing actions, we have seen a slowdown in new package designs in Europe and North America. We are making progress on multiple initiatives that accelerate sales and improve margins in this business in 2023.

Energy Solutions grew 15% organically despite a longer-than-typical lag on increased energy prices, momentum in this business is picking up. We are seeing increased drilling activity, which has led to increased production as well.

Industrial & Specialty grew adjusted EBITDA 38% on a constant-currency basis, including the contribution of the Coventya business and synergies from recent acquisitions. Margins improved by 160 basis points year-on-year. Similar to Electronics, cost management in the quarter helped to offset the combination of increased logistics costs, negative mix and raw material inflation in our smaller I&S businesses.

A substantial portion of our operating cost reduction in the quarter came from reduced variable-compensation expense assumptions that reflect the change in our near-term outlook. Our bonus program structurally offset deviations and earnings from our plan and is working as designed.

Moving to Slide 5, we cover cash flow and the balance sheet. We generated $116 million of free cash flow in the quarter, reflecting a significant release of working capital, a sequential sales decline and safety stocks moderated. We expect a higher level of working capital release in the fourth quarter as both these trends continue. Our other use of cash in the quarter, including cash taxes, CapEx and interest, all came in better than our expectations. We increased our share repurchase activity in the quarter, buying back approximately $55 million of stock or roughly 3 million shares.

As of the end of Q3, we had repurchased more than 6 million shares this year or well over 2% of our shares outstanding. Our remaining stock buyback authorization was $616 million as of September 30, and we continue to be active in the market.

Our net leverage ratio improved in the quarter at 3.1x, despite returning over $70 million of cash to shareholders. All our floating rate debt is swapped to fix through the end of next year. So rising interest rates are actually improving our cash interest expense as we earn more income from our cash balance. These term loans are also swapped to EUR and that crop-currency swap was approximately $150 million in the money at quarter end, effectively reducing our leverage ratio to 2.9x. Our balance sheet and liquidity position are very strong.

With that, I will turn the call back to Ben.

[Benjamin Gliklich, CEO]

Thank you, Carey.

Despite our growth in Q3, it's clear that our end markets are softening, in line with the rest of the global economy. We've reduced our outlook for Automotive recovery in the fourth quarter and now anticipate a softer Consumer Electronics environment as well. In addition, the translational headwind from the strong USD has grown significantly in recent months.

In Q4, FX will be a greater than $15 million year-over-year headwind. And the current headwind to 2023 adjusted EBITDA is approximately $30 million. As a result of these impacts, we now expect fourth quarter adjusted EBITDA to be approximately flat year-over-year on a constant-currency basis and full year 2022 adjusted EBITDA in the range of $525 million to $530 million.

Accordingly, we're updating our full year 2022 adjusted EPS guidance to between $1.40 to $1.42 and free cash flow guidance to approximately $250 million. While the consumable nature of our products and our highly variable cost structure helps insulate our business from macro volatility, we're not immune. However, we remain highly confident that Element Solutions is well positioned to continue to deliver long-term profitable growth. We see opportunity in this operating environment.

Our scale, liquidity and strategic horizon should allow us the stability to weather and capitalize on these markets. Our customers are engaging with and interested in our new technology platforms and our commercial and technical teams remain busy. This is a reflection of the longer-term momentum in our markets and the persistent iterative innovation we provide to enable our customers' products.

I'd like to thank all of our stakeholders for their continued support of Element Solutions and in particular, express my appreciation to our talented and dedicated people around the world responsible for another quarter of growth. Our business can withstand end-market volatility while retaining strong margins and cash flow, and our team has demonstrated that ability to balance that with maintaining a long-term strategic focus and orientation.

With that, operator, please open the line for questions.

[Operator]

[Operator Instructions] And we will take our first question from Kieran De Brun with Mizuho Corporation.

[Kieran De Brun, Mizuho Securities]

I just wanted to touch a little bit on margins. It seems like they held in pretty well in 3Q. They've been showing some progress, particularly in the I&S segment. How should we think about that into the fourth quarter? And any preliminary thoughts as the trends kind of progress into 2023? It seems like you do have some cost levers. And as things recover, there should be substantial leverage on the upside. So any comments on that would be helpful.

[Benjamin Gliklich, CEO]

Sure, absolutely, Kieran. So a couple of things to call out in Q3 with regard to margin, and then we can talk about the go-forward trajectory. For starters, metal prices came in, and that's a tailwind to margin. We talked about that being about 60 basis points of an improvement. We do cost levers in the quarter to preserve profits. That's the hallmark of this business that in difficult times, we can reduce costs and preserve profits and we saw an impact from that as well. So sequentially and year-over-year margins improved.

As we roll into Q4, obviously, we're expecting a sequential decline in sales given end markets and typical seasonality. So margins will be under a bit of pressure relative to Q3, driven by that. But we've taken a lot of price over the past year. We're managing costs and we've got more opportunity for cost into Q4 and particularly into 2023. And so margins should improve as we enter 2023 in light of the dynamics we walked through.

[Kieran De Brun, Mizuho Securities]

Great. And then maybe just a quick follow-up on the end markets. Just on the Automotive front. I mean Europe does seem to be weaker, but there still seems to be some kind of recovery and strength, especially on kind of the EV side in China and the U.S. So if you could just walk through what you're seeing by region maybe and just -- I know the outlook for the fourth quarter is a little bit weaker than what you were originally expecting, but some of -- some commentary from other kind of peers in the industry has alluded to the fact that they expect a meaningful recovery at some point next year in the Automotive side. So just kind of curious of your thoughts there.

[Benjamin Gliklich, CEO]

Yes. So the Auto market is recovering, I would say, sequentially, but it didn't recover to the extent or didn't grow to the extent that it was expected to grow by the industry and industry observers in Q3. And similarly, expectations for Q4 have moderated a bit. But -- and so for our comments in the script, we just went through, we are seeing a recovery, but we expect it to be a bit more slow than one would have expected entering the second half.

We are seeing that recovery differently in different regions. So things in Europe are -- remain soft. China has seen a more accelerated recovery. That has skewed towards the low-end EV. America has been reasonably stable. From an ESI business perspective, our business hasn't really tracked with -- from a timing perspective with Autos recently, right? If you look at last year, we significantly outperformed units in our Auto business. And this quarter in our business, we saw growth in our Auto market, but not to the same extent as the overall market.

That's not a comment on share. We're confident in our share, and we view this as more of a timing issue. We would say that activity levels at our largest customers, who are the largest players in the plating market in Europe don't really reflect the estimates we're seeing for Auto production increases in Europe. But we are seeing growth in that market. It's been moderated in the I&S business by a slowdown in the Construction and Industrial space. We do expect 2023 to be better from an auto standpoint.

[Operator]

And we will take our next question from Josh Spector with UBS Financial.

[Joshua Spector, UBS]

Just curious if you could provide some color on volumes. And I guess, a few things there. One, your expectations for fourth quarter and it might be helpful to provide some context, if you can, maybe first half volumes on a multiyear stack versus 2019 versus where things are now. It's just becoming a bit harder to differentiate given where pricing is and just given the organic reporting. So trying to kind of level set to where things are kind of exiting the year versus how you performed over the past couple.

[Benjamin Gliklich, CEO]

Yes. Sure, Josh. Good question. So as we called out, most of our growth this quarter was driven -- or our growth this quarter was driven more by pricing, both negotiated price increases and surcharge pricing than by volume. Volume was down in both businesses. The driver of that is the mobile phone market, which was down 12% year-on-year in the third quarter. And the Construction & Industrial business, General Industrial and the I&S business is also down from a volume perspective.

In Q4, we expect to see similar dynamics from a volume standpoint. We will be well below 2021 volumes and from a Circuitry perspective, our Circuitry business is looking more like 2018 to give you a sense for how far that market has fallen, which gives us, frankly, a lot of confidence in a very strong recovery because the trends propelling the business forward are durable trends, and we believe we've just hit an air pocket in terms of the mega trends propelling this business around expansion of computing power, the need for more data storage, 5G-enabled devices and 5G networks. Those things are all still happening, but they clearly have pushed all.

The first half over first half comp entering 2023 will be challenging because the market was quite healthy, particularly in Electronics in 2022.

[Joshua Spector, UBS]

Okay. And I guess just kind of the easy math here is annualizing second half EBITDA into next year, you're about $480 million and maybe a little bit worse than that with FX, I guess, why would that be wrong for investors to look at it that way? What kind of visibility do you have or other cost levers you could pull? Could that not to be the right way to think about 2023? Or is it the right way?

[Benjamin Gliklich, CEO]

Look, we're not in a position to give 2023 guidance today. It's clearly a very dynamic market environment. But these are growth markets. And historically, we've seen strong snapback when you think about the mobile phone market, right? One platform isn't as successful as expected. Typically, we've seen the subsequent platform being more successful. The Auto market is recovering and is expected to recover into 2023. And there are additional cost levers at our disposal should our markets not recover.

So I'm not going to comment on what the right number to think about for 2023 is. But if the market dynamics aren't recovering their cost levers and there are reasons to believe that several of our end markets should be healthy at some point in 2023.

[Operator]

We will take our next question from John Roberts with Credit Suisse.

[John Roberts, Credit Suisse]

The SG&A expense of $131.4 million in the R&D expense of $11.3 million, how much did they benefit from the reversal of accrued compensation in the first half? And do those expenses go up sequentially in the fourth quarter because you won't have the reversals again?

[Benjamin Gliklich, CEO]

Yes. So we did throw cost levers, as we mentioned, John, in the third quarter, and some of those are true-ups based on first half accruals. And so you could think about that as maybe a $10-ish million cost savings in Q3, of which we won't have that full lever at our disposal in Q4. But there are other levers we could throw if the business isn't tracking organically to plan from a top line and GP perspective to deliver on our fourth quarter.

[Carey Dorman, CFO]

And John, I would just add to that, there's also about a $8 million to $10 million FX impact in those year-over-year numbers as well.

[John Roberts, Credit Suisse]

Got it. Your own inventories were down sequentially. I don't know whether metals contributed to that sequential-inventory decline. But usually when the end-market sales declined, inventories back up all along the supply chain. Do you have any visibility to inventories down the supply chain beyond you?

[Benjamin Gliklich, CEO]

Yes. So a few observations. First, our inventories declined sequentially. Some of that was metal price. Some of that was FX, and some of that was a reduction in safety stocks as we've seen our supply chain stabilizing, not completely, but beginning to stabilize.

As we look into the channel, there definitely has been some level of inventory unwind associated with demand in the semiconductor market and the data storage market, for example. And there may be some more of that in Q4 as we look forward and triangulate what our expectation for demand is relative to end markets. But typically, in our business, there isn't a significant amount of inventory of our product in the supply chain, and we don't believe that dynamic has changed.

[Operator]

We'll take our next question from Stephen Byrne with Bank of America.

[Robert Koort, Bank of America]

This is Rob Koort on for Steve Byrne. My first question is, how would you split the new wins into buckets of share gains, cross-selling or customer capacity expansions? And is any of this from the strategic initiatives identified by ESI's business unit leaders?

[Benjamin Gliklich, CEO]

Thanks, Rob. So we've been winning new business in all of those categories, frankly. We've seen new sites opening driven by either geopolitics out of markets in Asia or out of market in Europe, we've seen significant new wins in adjacent markets, in our semiconductor space, in our MES and bio business, which is water treatment. And -- anytime we get more than a 1/4, if you will, because more than 1/4 of the new lines that are coming in from a capacity perspective, we're gaining share. And we believe our performance year-to-date and even in this quarter is demonstrative of our -- getting more than our disproportionate amount of business. If you look at unit performance relative to our performance, we see ourselves as improving our share position.

And this is largely driven by strategic focus and what we call ESDI, our element, strategy, development and implementation program. Still early in terms of its life cycle at Element has been rewarding.

[Robert Koort, Bank of America]

And just a follow-up, how much of your Assembly sales are from that silver sensoring technology used in EV Motors? And where do you expect sales for this product line to go longer term with this technology be used in stationary storage?

[Benjamin Gliklich, CEO]

So we haven't disclosed sales from that product. But when we refer to Power Electronics, that is that market, and we have seen continued growth in Power Electronics year-on-year, and expect that growth to continue in Q4 and into 2023. The primary application for that product line is in EVs -- high-end EVs, but we're seeing interest in it for infrastructure and other applications, early days, very long runway and expectations for continued strong growth.

[Operator]

[Operator Instructions] And we will take our next question from Jon Tanwanteng with CJS Securities.

[Jonathan Tanwanteng, CJS Securities]

I was wondering if you could talk about your expectations for content growth per application in the businesses where that's relevant, Auto, Electronics, et cetera? Where is that metric as you see going forward compared to maybe what your historical was, given your program wins so far and what your customers are telling you?

[Benjamin Gliklich, CEO]

Yes. Thanks, Jon. So what we've said is that we get a 15% content uplift on a 5G phone versus a comparable 4G phone. 5G penetration of mobile phone units is still relatively low. Something around 50%, and so there's more uplift opportunity from a content standpoint. And we're trying to grow our value per unit entering markets like thermal interface materials and the formal coatings and other types of electronics adhesives where we have a very small market position but good technology that we've acquired through acquisition.

In electric vehicles, we have a very significant content opportunity driven by what we were just talking about Power Electronics, for example. And that's 1.5 to 2x the content on a comp -- on an EV versus comparable internal combustion car. And EVs as a percentage of the automotive fleet remained quite low, though that dynamic is changing rapidly. And so we see significant opportunity from a content perspective and even on an ICE, as new model years are introduced, there's more electronics. There's more decorative and functional surface treatment. And so we see an uplift. A couple of points of content growth per year over unit growth going forward.

[Jonathan Tanwanteng, CJS Securities]

Great. And I was wondering if you could also comment a bit more on the Semiconductor business? Where is the most exposed in terms of market applications? Is it consumer or more forms computing and networking? Just trying to get a sense of where that business is going to go given the current dichotomy and demand in those end markets?

[Benjamin Gliklich, CEO]

So our Semi business is more exposed on the logic side than the memory side. If you were to split the market into two, the logic versus memory split is the applicable one, and we've got more exposure on the logic side than the memory side. And we're gaining significant traction in heterogeneous packaging. So if you think about advanced packaging applications, system and package designs with OSAT, our capabilities from the high-end circuit board side and the assembly side are very relevant in these next-generation chips and chiplets, which is a nascent market that's been growing very rapidly and it continues to grow rapidly where we have a very significant opportunity. But again, that's more on the logic side than the memory side.

[Jonathan Tanwanteng, CJS Securities]

Okay. Final one for me. Do you expect any change in the capital allocation strategy? You've been buying back a lot of shares but maybe are there more opportunities maybe in smaller acquisitions of tuck-ins just given the sales of markets help us think of what you guys are planning and thinking about going forward?

[Benjamin Gliklich, CEO]

Yes. The simple answer is no, it's no change, Jon. We're going to remain opportunistic and deploy capital prudently to compound earnings per share over the past several quarters, it's been in the form of buybacks and I wouldn't expect that to change in Q4.

[Operator]

And we will take our next question from Chris Kapsch with Loop Capital.

[Christopher Kapsch, Loop Capital Markets]

So I had a question. You've -- you frame your Electronics business as having not much exposure to personal computer PCBs, which are more commoditized than, say, smartphones. And just looking at the macro, that seems to be the area where there's the most pronounced weakness in Consumer Electronics ecosystem even as its weakness is broad-based. So I'm just wondering as you saw your Electronic business and Circuitry, in particular, endure some abrupt sequential weakening during the third quarter, I was just wondering if -- which end markets do you attribute that to? Is it mostly smartphone or is there any way to bracket or bucket those end markets what you see attributable to the sequential weakening?

[Benjamin Gliklich, CEO]

Yes, absolutely, Chris. So I'd say two things. The two biggest markets that impacted the third quarter were smartphones and data storage. This is the first quarter that we can remember and the corporate memory here is quite long, where Q3 was softer in Electronics than Q2, right? Every year, there's been a ramp in Q3 associated with new mobile platform launches, and this year, that just didn't happen, which was a big surprise.

So mobile units decelerated, they were down 7% year-over-year in Q2, 12% in Q3. And the data storage market was helping us through the first half as the mobile market was already soft entering Q3. It just softened and data storage was very robust in the first half. And that market really saw a significant decline in Q3 from the handful of customers we have there. And so those 2 markets are the biggest drivers of the sequential weakness we saw, not PCs.

[Christopher Kapsch, Loop Capital Markets]

Got it. That's helpful. And then my follow-up is kind of more about a bigger-picture commercial strategy sort of question. And as I've observed Electronic Chemicals feeding into the Semiconductor space over many years, but during periods of downturns, there's actually sort of an opportunity when the fabs have -- there's more tool time, if you will, to an opportunity for -- for suppliers to get products qualified, maybe innovative -- innovations that help lower the cost of ownership for the fab operator.

So I'm wondering if there's something similar dynamic or opportunity in the print circuit board ecosystem which presumably is going to be at least an air pocket, a soft patch, where there's underutilization of those assets, if that's an opportunity for you to do something commercially, for example, to ramp up the adoption of your electrical as copper plating solution, something like that. How do you think about that dynamic?

[Benjamin Gliklich, CEO]

Thanks, Chris. Yes, it's a great observation, which is to say when utilization is lower, there's more time for trials. And that's something that we certainly intend to seize upon and that is a dynamic that is true in the semiconductor market as well as the circuit board market. And you heard us say on prior calls, and it continues to be the case, that customer activity, customer engagement remains very high. And I don't think that's necessarily being driven by utilization levels. I think that's being driven by technology inflections, but utilization levels being lower may accelerate some of the technology inflection, and it's certainly something that is not lost on us.

[Operator]

And we will take our next question from Angel Castillo with Morgan Stanley.

[Stefan Diaz, Morgan Stanley]

This is Stefan Diaz sitting in for Angel Castillo. At the Investor Day, you laid out a long-term 2026 EPS target of $2.50. That implied an annual CAGR of over 10%. Admittedly, there's still a lot of time between now and then. But given all the macro uncertainty and near-term challenges, do you still feel like this is an appropriate way to think of annual EPS growth? I guess, particularly in 2023, given all the cost levers you've mentioned?

[Benjamin Gliklich, CEO]

Yes. It's a good question, Stefan. But our targets are unchanged. They're long-term targets for a reason. If we were to put ourselves in our shoes in 2020, we would have thought that it was nearly impossible to achieve our goal for 2022, yet we did in 2021. These are dynamic markets and our company is executing and well positioned to benefit from growth in these markets. Historically, we've seen strong snapbacks from air pockets like this. And so our goal is unchanged and our confidence in our ability to deliver that goal is unchanged.

[Stefan Diaz, Morgan Stanley]

Great. And then as a follow-up, how are you seeing the order book trends? I know it's early in the quarter, but I guess the first few weeks of the quarter.

[Benjamin Gliklich, CEO]

Yes. October is playing out in line with what we would have expected and what we guided towards for the fourth quarter.

[Operator]

And ladies and gentlemen, there are no further questions at this time. I will now turn the call back over to Mr. Ben Gliklich for closing remarks.

[Benjamin Gliklich, CEO]

Thanks, Abby. And thanks, everybody, again, for joining us today. We look forward to seeing many of you soon and speaking with you as well. Thank you.