The other area, though, will be in organic growth. So, last year, we made two acquisitions in Biologicals, and I’d say we’re very pleased about the performance. Even in this market backdrop, the Biologicals businesses are performing very well, and Dave gave some of those numbers today. And even next year, these businesses are expected to grow double-digits. So, we would be looking for other acquisitions or mergers or commercial relationships in the biological space for sure. And then, of course, any other opportunities that we think would drive long-term shareholder value. And so I think what you’re going to expect to see is really a balanced approach to the allocation of capital. Organic growth, some inorganic growth perhaps and return of capital.
Operator: Thank you. And we’ll next go to Frank Mitsch with Fermium Research. Please go ahead.
Frank Mitsch: Good morning. Just curious now that chlorpyrifos is back in the news and the courts have rejected the EPA’s decision of a couple of years ago and is now allowing it. I know that you guys had — I believe you stopped producing it a couple of years ago. I’m just curious if you have any updated thoughts regarding chlorpyrifos and the recent rulings and what your future strategy might be there.
Dave Anderson: Really no change in our thinking, Frank, at this point in time. This is a business we made decision to exit. Strategically, it fits as well — that decision fits as well with our overall portfolio criteria today. So, appreciate the question, but no real change, no update in terms of our thinking.
Operator: Thank you. And next, we’ll go to Steve Byrne with Bank of America.
Steve Byrne: Yes, thank you. Don’t your crop chemicals have registrations that specify where they’re manufactured, and thus, is that — is that a challenge for you to shutter facilities because then you’d have to have the respective registrations in countries and crops revised? Or is that less of an issue for the plants you’re targeting. You mentioned Pittsburgh, California. Are we right on that. That’s where you make your nitrogen stabilizer, which wouldn’t have any relevance to registrations? Is that right? And maybe one broader crop chem question, and that is any lessons learned on the destocking that you’ve seen this year that you had a competitor yesterday that doesn’t seem to have that same issue. Is there some fundamental reason why this is more challenging for some than others?
Chuck Magro: Good morning Steve, maybe Robert, you can answer the registration questions, and I can come back with the lessons learned.
Robert King: Sure. Yes, Frank [ph], you’re right. Anything that we produce does have registrations. It does tie to where it’s made. And then, of course, where it’s applied. Optinyte is one of the main products that is made out of Pittsburgh that is our nitrogen stabilizer. It goes into what brand name N-Serve and Instinct NXTGEN. And both of those are leading industry-leading nitrogen stabilizers that is a good business for us. And so we have plans to move that production to another location. We will continue to serve our customers seamlessly through this time, and we’ll be in a better position in the future for this product to continue to serve the market. So, the registrations and things are part of the planning process when any time we move products are we — many times, we always have redundancy built into our system.
And so we have other plants registered many times. This is one that we’ll be move into registration and that’s all in the plans and timing of the overall transition here. So yes, good question, absolutely something we have to do, and it’s always in the planning when we go to rearrange our network.
Chuck Magro: And Steve, on the global CP destocking, look, I think every player in the industry has been involved in this in some dimension or degree. So are there lessons learned? Obviously, there is. And when we look back on it — were there signs of sort of a buildup in the channel? Yes. There was. We watch this data very carefully. We have a lot of insights in terms of what’s going to ground and what’s going into the channel. And when you look back over the last couple of years, it was pretty clear that the demand on the farm was nice and consistent. And that was a good observation. It still remains that way today. but there was more product going in the channel than going out of the channel and so that was clear. But like we’ve internally discussed these were orders that were coming from long-established partners in the channel.
These are major players that manage their inventory quite well, and these were real orders. And so when we started to think about this, I’m not sure we missed that. I think that there was a view that perhaps the on-farm demand would continue to increase. And that didn’t happen, obviously, but the demand has been quite steady. I’d say if there was one area where when we look back now and we see what’s happening in Brazil, because look, the US destocking, I’d say, is more or less, and there are pockets, but more or less behind us, which is the good news. But in Brazil, what we’re seeing is that there’s still elevated channel inventories. And that dynamic is different. The influence there that we’re finding is that there is a significant amount of generic supply coming into the country, which is impacting the overall products that are available in Brazil, and that is slowing down the destocking And some of this data is visible and some of this data is less visible, and it was very difficult to put it all together.
But it is pretty clear to us now that we’ve got sort of a unique situation in Brazil. That where we’re seeing sort of generic pressure coming into the marketplace. And that is an area where we — whether we are the only company that missed it, I don’t know about that. But it is something that was — that once we started to look for it, you could clearly see that there’s elevated inventories now coming in from offshore from — mostly from China.
Operator: Thank you. And next, we’ll go to Jeff Zekauskas from JPMorgan. Please go ahead.
Jeff Zekauskas: Thanks very much. There are two questions. In terms of your operating cash flow, you’re $460 million behind where you were last year when you generated roughly $900 million in operating cash flow. So, to get to the bottom of your operating cash flow range of $1.2 billion, you’ve got to do $3.8 billion in the fourth quarter versus roughly $3 billion last year, and your inventories are higher and receivables are higher and payables are lower. Can you really get to that to the bottom of the range? And then secondly, on a normal basis, what should your operating cash flow be in general or relative to your EBITDA? It gyrates so much positively and negatively.
Dave Anderson: Yes, Jeff, those are — this is Dave. Those are good questions. So, you’re right, there’s a lot of free cash flow or cash from operations to be generated in the fourth quarter. When you look at it, though, on a year-over-year basis, if you will, the change on the change, it’s significantly related to receivables slowdown reduction, which is very understandable in the light of the revenue outlook. And by the way, while DSOs have ticked up a bit, they’re still within a very healthy parameters compared to historic averages. And then the other thing is inventory because we are bringing inventories down as a result of the volume declines. And as I mentioned earlier, and Robert referenced also the reduction in procurement or purchasing as a result of those lower volumes.
So, both receivables and inventory will be sources of cash on a year-over-year basis, an important deliverable in the fourth quarter. Payables on the other hand will represent a headwind. Deferred revenue is not much of a change compared to prior year. So that’s really not significant. It doesn’t play really into it. It’s really a working capital story. In terms of run rate, kind of where we want to be, where we need to be, I’m going to use free cash flow as opposed to cash from operations. So, after CapEx, free cash flow, we think, again, in the range of building to 40% then to 50% and so forth is very, very reasonable for the company. In 2024, when we look forward, we’ll again have positive from working capital, we believe. We’ll have a little bit of increase as a result of what we just mentioned.
