Mike Leithead: Great. Thank you.
Operator: Your next question comes from Josh Spector with UBS. Please go ahead.
Josh Spector: Yeah, hi, good morning.
Ed Breen: Good morning.
Josh Spector: Good morning. Just on the second half expectations, so obviously, visibility is pretty low. But I mean, at the high end of your guide, you’re kind of projecting that you could see EBITDA up about 15% maybe in the second half. What needs to happen for that to play out? Kind of what’s the expectation on the volume or restocking dynamic that would see you get to that end of the range?
Ed Breen: Yeah. So, by the way, just a few bullet points on kind of first half, second half ramp there, obviously, the increased semi fab and PC utilization rates, remember, semi is a very high-margin business for us. So, we see that coming back. And we’ve already started to see, as we just commented slightly, we’re seeing an improvement. It was about 2% in the quarter. So, we clearly bottomed out there and we’ll now lift. Destock will be mostly complete in the second half of the year. The only ones that might slip into the fourth quarter and we’ve taken that into account as biopharma and Kalrez, although many in biopharma think that’s going to lift by the inflection point at the middle of the year, we’re a little more cautious than it’s — maybe more of a fourth quarter, and then clearly improved factory absorption from the hits we’ve been taking there to keep inventory in line.
And then we’ll have more of the cost savings from the restructuring program. So, I’d say that’s the big items that kind of build first half, second half. And obviously, just volume ramp in general because of destock ending.
Josh Spector: Okay. Thanks. That’s helpful. And just to maybe follow-up, just more on the first half, are there discrete items we should be thinking about first quarter to second quarter, so that 10% lift you potentially see. I guess, is there a headwind baked in there in the first quarter because you’re taking additional inventory actions that’s ex or something else that actually absent a material demand improvement improves earnings, or is this more destocking volume driven? Thanks.
Lori Koch: Yeah. So sequentially, a lot of it is volume driven. So, we see about $150 million of revenue ramp first quarter to second quarter. That’s primarily volume. We also see a little bit of a build in the cost savings program. So, we had mentioned it will really kick in at the end of Q1. So you’ll see some ramp as you head into Q2. Those are the biggest items. The largest improvement is going to be the volume increase, though, first quarter to second quarter.
Josh Spector: Okay. Thank you.
Operator: Your next question comes from John Roberts with Mizuho. Please go ahead.
John Roberts: Thank you. Just one for me. In shelter solutions, now that the channel is destocked, are you expecting a normal seasonal sequential improvement or below normal in that segment?
Lori Koch: We would expect normal. So normally, 2Q and 3Q are the best quarters for shelter within 1Q and 4Q being lower than those averages.
John Roberts: Great. Thank you.
Ed Breen: Thanks, John.
Operator: Your next question comes from David Begleiter with Deutsche Bank. Please go ahead.
David Begleiter: Thank you. Good morning. Ed, you were very…
Ed Breen: Good morning, David.
David Begleiter: Good morning. You were very valuable electronics business as not being valued by the market, what are the options in your mind to unlock or have that value being realized?
Ed Breen: Well, David, I think, look, we’ve got — we’re working our way through this destock. And I think the year is going to lift very nicely. I think we just have to be patient to see how it looks as we’re kind of exiting 2024. And I think we haven’t been in stability here with the destock going on in the short cycle nature. But to your point, David, it’s a phenomenal franchise. We’re in the sweet spot of it. We got a lot of upside coming with the AI opportunity. All these new facilities, fabs we have built are mostly advanced chips, which plays even more to our strength. So, when people can really see these numbers cranking again, as we’re going through the second half of the year, we’ll see how the company is valued.
David Begleiter: Very good. And just on PFAS, Ed, what’s your expectation for improvement on that issue this year?
Ed Breen: Well, I think we’re within days or a couple of weeks of the judge finally getting the whole water district thing done at all. I think it was just — they’re probably waiting. I think what’s going on is they’re just waiting to get one announcement from all the companies out. And I think 3M just last Friday, had their kind of I’ll call it a preliminary hearing. So, I think that’s very, very close to being finalized here. And then, nothing will happen on the personal injury cases most likely this year. However, our kind of take is, we like to settle these things before there’s any trial, but they are going through picking some of the — who would be the initial ones that would go to trial. I think there’s 28 of those on the list right now and the judge and all will narrow that down to a smaller group. But I don’t think that’s a 2024 issue on that.
David Begleiter: Very good. Thank you.
Ed Breen: Thanks.
Operator: Your next question comes from John McNulty with BMO Capital Markets. Please go ahead.
John McNulty: Yeah. Good morning. Thanks for taking my question.
Ed Breen: Good morning, John.
John McNulty: So, Ed, we have a lot of new fabs coming on. I mean, just kind of looking at kind of high level, it looks like almost double digit coming on this year and then again in ’25 and ’26. I guess, can you help us or remind us when you get those wins, like when you see that? And how much of that cake is baked at this point? And then maybe any commentary on share wins or shifts that you might have seen on some of these fabs that are coming up?
Ed Breen: Yeah, sales process works. We do a lot of application engineering and development directly with the top — really, it’s about 10 major customers in the semi side. So, it’s really the win we get there, where it’s processed at a fab is somewhat irrelevant to us. Although we like the fact that these fabs are coming on because the world thinks there’s a lot of demand coming over the next cycle here in the semi world, which there should be because everything needs to chip nowadays and more of its advanced chips. But our win rate is really at the design stage with these 10 large customers around the world. And again, where they make it doesn’t really matter that much to us, but still a very good sign. And I’d say, overall, market share does not shift much in this business. There is a couple of key players, especially on the higher-end chips and market share is pretty steady across the board year in and year out.
John McNulty: Got it. Fair enough. And then on the shelter solutions side of the business, can you help us to think about what the utilization rates are now that it looks like you’ve kind of bottomed out in that business? And then, how we should think about the incrementals on that as volume starts to really come back?
Lori Koch: Yes. So, we had mentioned we saw an improvement in volume as the year went on. The volumes in shelter were kind of down about 4% in the fourth quarter, and we expect them to be slightly up in the first quarter and then build from there to about 4% by the time we close out the year. So, the utilization rates will definitely improve. This is not a high fixed cost business. So when we talked about the absorption headwinds that we saw throughout 2023, that was primarily in the E&I side, and then it started to kick in a little bit on the safety side with the heavy assets in that portfolio. So there isn’t a huge absorption headwind within shelter, but we will see some benefit from volume that would have a little bit of benefit absorption as the year goes on.
John McNulty: Great. Thanks very much for the color.
Operator: Your next question comes from Steve Tusa with JPMorgan. Please go ahead.
Steve Tusa: Hi, good morning.
Ed Breen: Good morning, Steve.
Steve Tusa: Is there any reason over the course of this recovery, why your business should decouple from broad electronics trends? I mean, are you guys less exposed to what’s going on in AI and data center? Have you guys — do you think you’ve lost share anywhere because a different technology is required in those applications? I mean it just seems like electronics right now is kind of a multispeed world. And I think I would have expected a little more out of you guys so far, but maybe just some comments on how kind of coupled you’re going to be to that recovery.
Ed Breen: I think we’re very coupled to it because the big — one of the big demand drivers next year is data center and that’s a lot of advanced chip applications. I won’t say the customer’s name, but there’s one that’s been out there very steadily that is requiring a lot of advanced chips that is a key customer of ours. So, that whole drive towards AI data center and the need for advanced chips plays right to the sweet spot of our portfolio. So no, we won’t decouple at all. There’s no area that’s going to grow faster in the semi side that we won’t participate in. That truly is our sweet spot as we go forward here. Remember, in a typical times, we’ve consistently outgrown the market to 300 basis points because of that dynamic.
Steve Tusa: Okay.
Lori Koch: Yeah. I think, Steve, too, so on semi, it’s around a $2 billion business for us, about $700 million of that is data center. So it’s a pretty large chunk. If you look at the results and the forecast that the OEMs are providing, it’s oftentimes skewed by the price of the chip, which it has no impact on our volumes and our revenues. So that’s one thing maybe just to clarify to make sure that if you’re seeing lift in some of the OEMs, it’s probably right now more coming from price, especially on the memory side. Our portfolio is about 30% memory, 70% logic foundry from a disposition perspective as well.
