Element Solutions Q1 2023 Earnings Call Transcript

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April 27, 2023

There are 11 speakers on the call.

Operator

Good morning, ladies and gentlemen, and welcome to the Element Solutions Q1 2023 Financial Results Conference Call. Today's call is being recorded and all lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer Thank you. I will now turn the call over to Varun Gokorn, Senior Director of Strategy and Finance, please go ahead.

Speaker 1

Good morning, and thank you for participating in our Q1 2023 earnings conference call. Joining me are Executive Chairman, Sir Martin Franklin CEO, Ben Glicklitsch and CFO, Carrie Dorman. In accordance with Regulation FD or fair disclosure, we are webcasting this Any redistribution, retransmission or rebroadcast of this call in any form without the expressed written consent of Element Solutions is strictly prohibited. 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 are subject to risks and uncertainties.

Speaker 1

Please refer to our earnings release, supplemental slides and most recent SEC filings for a discussion of material risk factors that could cause These materials can be found on the company's website at www.elementsolutionsinc.com 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 metrics.

Speaker 1

It is now my pleasure to introduce Element Solutions' CEO, Ben Glicklitsch.

Speaker 2

Thank you, Varun, and good morning, everybody. Thank you for joining. In the Q1, Element Solutions delivered on its financial commitments. We grew adjusted EBITDA sequentially And reported results in line with our guidance despite continued softness in electronics end markets and Asian economies more broadly. Portfolio diversification and cost containment softened the impact of declines in key end markets like mobile.

Speaker 2

Our organic sales performance reflects the consumer electronics malaise began in the middle of last year and has driven broad based volume declines across the industry. Organic sales were down 7% Notably, that quarter was our largest for sales and EBITDA since we launched ESI. This quarter's sales results included an 11% decline in your Electronics segment that was partially offset by 2% organic growth in Industrial and Specialty. The I and S segment was buoyed by resilience in Western Automotive Markets and a solid recovery in offshore energy production. Demand in the Americas and Europe, while soft, is playing out largely as we expected entering the year.

Speaker 2

However, recovery in China post COVID reopening And Lunar New Year has been slower than expected. When demand will recover in Asia and in electronics markets remains uncertain, There are good reasons for second half optimism. Semiconductor customers expect increased utilization rates in late Q2 and into Q3 And related sector should follow. While only a portion of our electronic sales go into front end of line semiconductor, they are a leading indicator. There were bright spots in Q1.

Speaker 2

Our power electronics offerings continued to perform very well as EV production rates accelerated Customer traction for certain new electronics and industrial applications bodes well for outsized growth when markets recover. Our Energy Solutions business is also growing ahead of our expectations. Commercial and technical execution has been solid. On the cost side, we're beginning to benefit from a normalization in logistics prices and deflation in certain raw materials, Driving a sequential improvement in gross margin that we expect to continue through the remainder of the year. We're also enforcing tighter control on discretionary spending And driving process efficiencies through our supply chain and in G and A.

Speaker 2

This is not coming at the cost of long term growth. We're still investing in strategic focus areas and maintaining the resources needed to support the market recovery when it arrives. Given the variable cost nature of our business, we have additional levers to reduce costs in the second half should expected demand not fully materialize. Commercially, our teams remain focused on delivering exceptional products and service. Our customers and technologies support attractive markets such as electric vehicles, 5 gs enabled electronics and sustainable chemistry solutions, markets that will grow.

Speaker 2

We've also continued to deploy our capital effectively into high returning investments that we believe will continue to compound per share earnings. Periods of low demand and market uncertainty often generate unique opportunities. We believe 2023 may be such an environment and expect to exit this year better positioned than when we entered it. Cary will now take you through our Q1 business results in more detail. Cary?

Speaker 2

Thanks, Ben. Good morning, everyone. On Slide 3, you can see a summary of our Q1 financial results. Organic sales declined 7% year over year and constant currency adjusted EBITDA declined 18%. The disproportionate reduction in profitability contributed significant high margin sales.

Speaker 2

Those same markets experienced substantially reduced demand in the Q1 of 2023, driving 11% organic sales decline in our Electronics business. Our net sales and adjusted EBITDA were also both impacted by Our Industrial and Specialty segment grew sales organically 2%, primarily due to improved activity in the offshore energy business and new customer ramp up in graphics, which offset weakness in our industrial surface treatment business in China. Our first quarter adjusted EBITDA of $112,000,000 was 4% higher sequentially as gross margins benefited from improving raw material costs. In constant currency terms, adjusted EBITDA margin declined 150 basis points year over year. Electronics segment adjusted EBITDA margin Negatively impacted by volume declines in higher margin circuitry and semiconductor application, partially offset by reduced pass through metals prices.

Speaker 2

Industrial segment margins were negatively impacted by mix. Adjusted EBITDA margins improved sequentially 70 basis points from Q4 2022, reflecting the easing headwinds from higher logistics that we experienced through much of last year, as well as non metal raw materials that were modestly deflationary. Significantly lower prices on pass through metals such as tin and silver or a slight tailwind in margins relative to Q1 2022. Excluding the impact of the $83,000,000 of pass through metal sales in our Assembly Solutions business, Our adjusted EBITDA margin would have been 23% in the Q1. On Slide 4, we share additional detail on the drivers of organic net sales growth in our 2 segments.

Speaker 2

In electronics, mobile phone and consumer electronics demand had the most material impacts. Our automotive electronics business remained resilient, particularly for electric vehicles. In the Q1, power electronics continued to grow nicely as production of high end electric vehicles accelerated. However, overall semiconductor solutions declined 19% organically, reflecting reduced utilization levels at semiconductor fabs. Assembly declined only 5% as it is less weighted towards mobile and consumer electronics.

Speaker 2

Circuitry solutions declined 17% organically As persistent smartphone weakness continued from the end of last year, customers across the mobile supply chain saw meaningfully lower production volumes, while other electronics hardware production also declined. Additionally, we are comparing against the period of particularly strong performance in cloud computing Data storage that benefited our memory disk business early in 2022. We expect demand from both smartphone suppliers And memory gets customers to improve in the second half of twenty twenty three. For the Q1, organic net sales in industrial and specialty increased 2% year over year. Industrial Solutions declined 1% organically as demand in the European construction and industrial market slowed from the strong levels we saw a year ago And automotive production in China remains soft.

Speaker 2

Overall, our automotive business performed in line with global auto production in the Q1, which was resilient in the West, but soft in China. 3rd party estimates of China auto production recovery have been pushed out and inform a more cautious view on sequential acceleration in this business in the Q2. Graphic Solutions sales increased organically by 9%, reflecting a ramp in new business and pricing, which is only partially offset inflation thus far. Energy Solutions were the bright spot, with sales growing 25% organically in the quarter, As production and drilling activity has rebounded, we expect continued growth for this business throughout the year. Slide 5 addresses cash flow and the balance sheet.

Speaker 2

We generated $45,000,000 of free cash flow in the Q1, including a $13,000,000 investment into working capital, which reflects a seasonal inventory build. This quarter we also made a $16,000,000 semiannual cash interest payment on our outstanding senior notes. CapEx in the quarter was $9,000,000 which is below the annual runway we expect for this year. This number should ramp as certain growth projects and integration initiatives get off the ground. Turning to the balance sheet.

Speaker 2

Our net leverage ratio at the end of the quarter was 3.3 times, a slight increase from the end of 2022. In March, we opportunistically extended the maturity date of $360,000,000 or roughly half of our interest rate and cross currency swaps that were previously set to mature in January 2024 to January 2026. We expect this will increase cash interest by roughly $5,000,000 this year. But these actions help mitigate future interest rate risk. Swap maturities in our term loan are now split evenly over the next 3 years And our capital structure is 100% fixed rate until 2024 and more than 80% fixed rate until 2025.

Speaker 2

We have no debt maturities until 2026 and our liquidity position remains strong. And with that, I will turn it back to Ben. Thanks, Gary. While the business in Europe and the Americas has been resilient, we exited the Q1 in a weaker demand environment And was generally anticipated due to Asian and electronics markets. From what we've seen to date, we are reluctant to forecast a Deep sequential improvement in our end markets in the Q2.

Speaker 2

We expect adjusted EBITDA to be approximately $120,000,000 This sequential improvement assumes a benefit from more selling days and modest sequential gross margin improvement due to ongoing pricing activity, commercial execution And raw material deflation. Our conversations with customers and suppliers still support our expectation of a demand inflection in the second half of the year. We'll be growing off a lower baseline, which translates to the low end of our prior $510,000,000 to $530,000,000 Full year 2023 guidance range. We still expect to generate roughly $275,000,000 of free cash flow for the full year. Our ability to reduce operating expense and preserve profitability, as we've demonstrated in prior periods of market weakness remains.

Speaker 2

However, you should not expect us to present a significant restructuring program. Our primary costs are our people and they are the key to our moat and the engine for our growth. We've invested in a culture, capability and team that are resilient in down market And I've positioned the company to benefit disproportionately from the long term growth drivers in our markets. We're conscious and considerate of our spending in all market environments. This ongoing air pocket of demand does not change how we view the long term trajectory of our business.

Speaker 2

We're pleased with how the team is executing in this environment and its ability to focus on Key breakthrough strategic objectives, supporting customers and growing our sales pipeline to take advantage of end market acceleration Without losing cost discipline in the short term, you should expect that to continue. To wrap up, I'd like to thank all of our stakeholders for their continued support and in particular our talented and dedicated people around the world. With that operator, please open the line for questions.

Operator

We will pause for just a moment to compile the Q and A roster. Your first question comes from the line of Josh Spector with UBS. Your line is open.

Speaker 3

Yes. Hey, guys. Thanks for taking my question. I just wanted to ask about kind of how you're thinking about the cadence here through the rest of the year. So you talked about levers that It helps the cost in the second half.

Speaker 3

You lowered your EBITDA expectations, but you didn't lower your range. So if we get a weaker recovery, Do you still think you can get to the low end of your range with the levers that you have or

Speaker 2

would that be a different scenario than what you're forecasting? Thanks for the question, Josh. Yes, so as we guided in the Q1, We thought the cadence half over half would be something like $240,000,000 of EBITDA in the first half and $280,000,000 in the second half At the midpoint. Obviously, we delivered on our Q1 expectation, but our expectations for the Q2 are dampened By demand. We are communicating today that the ramp we expected in the second half is Increasingly likely relative to what we thought a couple of months ago, but the exit velocity coming out of the Q1 is a bit lower.

Speaker 2

We have retained all of the cost levers that we would have had in a normal year as we enter the second quarter and expect to have them Entering the second half as well in case that ramp doesn't materialize or the magnitude of the ramp is inadequate To deliver on that guidance. So yes, we do believe we have ample cost capacity Entering the second half to deliver on our guide.

Speaker 3

Okay. No, I appreciate that. And I wanted to ask second, this might be too early to give a deep comment, but there's some headlines circulating around Germany and basically electronic or semi chemicals Limitations on shipments into China. Do you have any way to think about risk there for you or your sales flow in that direction?

Speaker 2

Yes. It's been a dynamic regulatory environment for high end electronics going on a couple of years now and We have been nimble to ensure compliance. I'd say that our value at the very leading edge in semiconductor Is less than our value into printed circuit boards or assembly materials and the Chinese local market for leading edge Semiconductor is smaller than in Taiwan or Korea or North America. So we don't see a significant impact should Regulatory frameworks change in the semiconductor space. Our small portion of front end of line semiconductor sales has already been subject to these sorts of export controls.

Speaker 2

So it's not a big Needle mover based on what we can see today, but of course that's a dynamic situation. Okay. Thanks, Ben.

Operator

Your next question comes from the line of John Roberts with Credit Suisse. Your line is open.

Speaker 4

Great. Thank you. SG and A in the quarter was only down a few percent from a year ago in spite of the much weaker start to the year. I assume you're accruing your compensation in the Q1 to that full year EBITDA target, that's there. And If it doesn't materialize in the back year in terms of the recovery, you would just reverse some of those accruals later in the year?

Speaker 2

Yes. So that relates to Josh's question as well. We are coiling the cost spring as we move along through the year. We have not taken significant actions to reduce costs. I would say right now we're in a cost containment mode, Right.

Speaker 2

Being very thoughtful about where we're adding costs, but we're not actively reducing expense at the moment. We're always considerate of what of our spend, but there's plenty of opportunity, I would say, entering the second half For us to reduce cost to deliver on our financial commitments should demand not materialize.

Speaker 4

And then on Slide 4, the much lower growth in the assembly Business, how different is the China in mobile exposure for assembly relative to the circuitry and semiconductor end markets?

Speaker 2

Yes. The assembly business was outperformed the Circuitry and Semi businesses in the Q1 Because it's more broadly exposed to electronics and automotive than the circuitry and semiconductor businesses were skewed towards the high end. And we saw that in the Q4 as well. So the assembly business has significantly outperformed Higher end electronics markets because of its mix, bigger presence in North America, wading into general automotive, And that's a trend that we would expect to continue insofar as there's continued weakness in mobile markets, for example.

Speaker 1

Okay. Thank you.

Operator

Your next question comes from the line of Kieran Deebruyn with Mizuho Securities. Your line is open.

Speaker 5

Hey, good morning. I was wondering just in terms of semiconductor and circuitry, if you can dial in a little bit more on how things have changed in the 1st quarters Where your expectations were in 4Q, I think we've had a few announcements from some of the big semiconductor players in terms of how they're Planning on running some of their semiconductors and the fab utilization throughout the beginning of the year and into the back half of the year as well as Some revisions in terms of expectations for mobile handsets in the back half of the year. So, in the context of some of the industry commentary, if you can just A lot of color on how your expectations have changed or have evolved since the POCATE 4Q, that would be helpful.

Speaker 2

Absolutely. So the circuitry and semi business is skewed towards higher end electronics, mobile devices being a core end market there. Handsets were down nearly 20% Year over year in the Q1, which wasn't far from what folks would have expected entering the year. What's changed is The timing of the ramp in the high end. So entering the year, I think there was some Talk of a ramp in the Q2, what we've seen is that we didn't see a strong recovery in China coming out of Lunar New Year And the tone is of a ramp late in the second quarter, early Q3.

Speaker 2

But we have more reference points today than we did a couple of months ago supporting that assertion. So We've heard mobile OEMs talking about production rates ramping in July. We've heard semiconductor fabricators talking about Fab utilization troughing in the 2nd quarter and beginning to recover late in the Q2 and into Q3. And We believe that a recovery in these markets is increasingly likely And that's the basis for our look forward. And so what's changed, I would say, the second quarter It's softer than we would have thought a few months ago and the back half ramp is more likely.

Speaker 5

Great. And then maybe just a quick follow-up on cash flows. You still have a pretty strong outlook for the year. You have a pretty decent amount of cash on hand. So how should we think about Maybe capital deployment priorities as we go through the remainder of the year.

Speaker 2

Yes. So the hallmark of this business It is stable margins and strong cash flow in all environments and our guide reflects that dynamic. So we're going to generate In around $275,000,000 of free cash flow this year. We have cash on hand. I would say that the opportunity cost of that cash And the actual cost of our capital is higher today than it's been.

Speaker 2

And so we're being very measured with regard to capital deployment. We do believe that you can get unique opportunities in markets like the one we're in right now. And we're certainly Looking for those, but we're going to be very prudent. Great. Thank you.

Operator

Your next question comes from the line of Angel Castillo with Morgan Stanley. Your line is open.

Speaker 6

Hello. Thanks for taking my question. This is actually Stephan Diaz sitting in for Angel.

Speaker 2

Good morning, Stephan. I believe last Good morning.

Speaker 6

I believe last quarter, your guidance was predicated on Handset volume being flat for the full year. I was just wondering what's embedded in your guide now?

Speaker 2

Yes. So end market assumptions or end market forecasts have changed a bit Over the Q1, expectations for handsets are down just a little, but other end markets are actually looking better. The data storage market, for example, expectations have improved there. The automotive electronics market expectation has increased, wireless infrastructure market growth Expectation has increased. So modest changes, I would say, but nothing dramatic and nothing that Change our full year outlook other than what we've sort of realized in the Q1 and expect in the Q2.

Speaker 6

Great. Thanks. And then, would you be able to parse out price versus volume embedded in that organic growth number for each segment?

Speaker 2

For each segment, wow. So we haven't disclosed that in the past. I would say that In the first half, we're obviously seeing volume down, price improvement year over year. And in the second half, we expect to retain the benefit of the price and see volumes improve Pretty dramatically because the second half of twenty twenty two was very soft.

Speaker 6

Great. Thanks for the color.

Operator

Your next question comes from the line of Steve Byrne with Bank of America. Your line is open. Hi.

Speaker 1

You have Ron Kaufman on for Steve Byrne. My first question is, which of the 3 electronics businesses are seeing signs of higher Customer operating rates and could you also kind of describe the operating rates by region for the industrial business?

Speaker 2

Sure. So the assembly business was down much less than the higher end And so you're seeing greater volume stability in that business. And we would expect that to continue into the Q2 and the ramp that we're anticipating in the second half will Benefit the Circuitry and Semiconductor Businesses Disproportionately. Within the Industrial and Specialty segment, the offshore business has been a real Bright spot for us where drilling activity has ramped significantly and we're seeing meaningful organic growth in that business, which we expect to persist through the year. In the Industrial Solutions vertical of the INS segment, we're seeing a much stronger performance in the West relative to Asia.

Speaker 2

The Asia business was down materially in the Q1, whereas Europe and North America have been quite resilient. Got it. Thanks. Additionally,

Speaker 1

do you have any potential new growth drivers this year from your strategy and development initiatives. You'd like to share?

Speaker 2

Yes. Look, we've been Driving a thorough detailed strategy development and implementation program here for a couple of years and we're seeing real traction at the customer level, in interesting new market adjacencies with new technologies. That customer traction is great. It's hard to see that come through the P and L in a weak demand environment like the one we're in, but it's what gives us conviction that we can outperform our markets as they ramp. And we are entering deeper profit pools with faster growth rates And we have a lot of confidence that we're going to be successful there.

Speaker 1

Got it. Thank you.

Operator

Your next question comes from the line of Jon Tanwanteng with CJS Securities. Your line is open.

Speaker 7

Hi, good morning. Thank you for taking my questions. Ben, are you explicitly thinking of a broader recession or maybe a soft landing in your forecasting Either late this year or entering 2024

Speaker 5

and within those scenarios, do

Speaker 7

you think that actually impacts your end markets just arguably already at trough levels?

Speaker 2

Yes. Thanks for the question, John. Look, the mobile market is off 20%, as I said, year over year in the Q1, it was down in

Speaker 1

the double digits in the

Speaker 2

full year of 2022. The automotive market while recovering is still very far from peak production rates. And the tone from industry participants and the OEMs in our markets is for a ramp in the second half, Fully aware of the potential risks in the global economy entering the second half. And so, certainly we're subject to broader macro trends. We have been, over the past 18 months, That doesn't undermine our confidence in that second half ramp.

Speaker 2

As we said earlier, That second half ramp is increasingly likely today relative to where we were a few months ago. And should it not materialize, we have levers at

Speaker 8

Okay, great. I don't know

Speaker 7

if you commented on this But how should we be thinking of EPS at the low end of the EBITDA range given the increased expense from the updated swaps? And then Are there any other puts and takes we should be thinking about just given whatever you can do on the capital allocation side?

Speaker 2

Yes. So we Adjusted our EPS guide, if you compare our slide today to the initial slide in Q4 earnings down to reflect the lower range. There is about $0.02 of capital allocation, to get to that $1.40 in our guide.

Speaker 1

Got it. Thank you.

Operator

Your next question comes from the line of Chris Kapsch with Loop Capital Markets. Your line is open.

Speaker 2

Yes, good morning. I had a

Speaker 9

question tied to the juxtaposition of The intriguing secular growth drivers of your end markets versus the cyclical downdraft that's being witnessed in units for so many Tronic Devices currently. And so as you were coming through the pandemic and even maybe as recently as last year, there was A strong cadence of quotation activity for new PCB lines. You guys were winning a disproportionate number of those lines, particularly for the Advanced or more complex devices. I'm wondering how should we think about those wins now? Have those lines come on helping your helping buttress your demand trends Versus the broader market or they and they're just being run at low utilization rates or they has that capacity been completely Deferred or postponed given this macro backdrop and so how should we think about the latent demand there for your business?

Speaker 2

Yes, it's a great question, Chris. So last year and the year before, we were winning more business We had in prior years and that actually continues into the Q1 of 2023. There were delays in some of those lines coming on because of Supply chain issues and part shortages, and some of those lines were delayed because of demand issues. But we haven't seen significant capacity come out of the supply chain in the printed circuit board market. And as has been well reported, semiconductor fabs are running at lower But you're not seeing capacity come out of that industry either.

Speaker 2

So as things ramp, we should see the benefit of those new wins. We should see utilization rates increase, some of those new lines come into operation and strong pull through And flow through of earnings for our businesses. Again, that's what gives us conviction and confidence that we can outperform our end markets And benefit disproportionately from the recovery in our markets.

Speaker 9

Got it. That's helpful. And then, so our TMT team at Loop Capital would have based on some proprietary analysis of Pretty some specific reasons for optimism around the Apple i15 variant specifically. And Just curious how you're thinking about that in terms of your enthusiasm and visibility you may have in terms of content per unit or the timing of ramp expectation. How important a piece of your narrative about the second half ramp narrative is that one particular variant?

Speaker 9

Appreciate it. Thanks.

Speaker 2

Yes. No, thanks, Chris. Without speaking to any specific OEMs, our business Does skew towards the non local Chinese smartphone OEMs. And When we think about the ramp in smartphone production, those are the folks that we would be more levered to. We do have more content per unit on each incrementally more sophisticated device, Which should drive outperformance relative to unit growth.

Speaker 2

And history would suggest that after less Then stellar platform launch, you see a much stronger one in the following year, Right. We've seen that over the past several years. And so all those things put together, again, builds conviction, confidence that We'll see a strong ramp in the back half here.

Speaker 9

Thanks for the color.

Operator

Your next question comes from the line of David Silver with C. L. King. Your line is open.

Speaker 10

Yes. Hi, good morning. Thank you. I had a question maybe focused on your outlook for The automotive sector in particular, so that's an end market that touches on both segments in a number of product lines. And to quote the eloquent words of one of my predecessors here, there's secular growth issues, juxtaposed with some cyclical variability.

Speaker 10

Supposed with some cyclical variability. But couple of things, but if you could just Give us your sense of how your businesses are progressing as the auto industry goes through its transition to Greater EV penetration. And whether you think that the content gains or the contract Wins that you envisioned are kind of materializing on schedule. And then more broadly, what kind of Improvement or trend do you have in the second half of twenty twenty three versus what you're experiencing in the first

Speaker 2

Thanks for the question. The automotive market is a key market for us. It's been one that's been It's off for an extended period of time. I'm starting to see it recover here. And then there is the secular trend of electric vehicles.

Speaker 2

So it's a pretty compound question. So for starters, the automotive market should be a modest growth driver for us in 2023 over the course of the full year. Over time, it should be a market that we can outperform units by a reasonably wide margin Because of content gains, and because of the shift to electric vehicles where we have more value. We've talked a lot about our Exceptional offering into power electronics markets and that's been a bright spot across the portfolio in the Q1 where we're growing really nicely, Supporting high end electric vehicles, where production rates continue to grow. But even in some of you could call it more legacy businesses, Like our Industrial Solutions business, there are more fasteners in electric vehicles than there are in a internal combustion engine car.

Speaker 2

And so we see this transition to EV as supporting our broader portfolio. Obviously, there's more electronics, there's more power electronics and

Speaker 10

Okay, great. I had a question maybe about your CapEx budget, so the $70,000,000 that was highlighted in your slide deck, a little bit higher than where it's been the last Could you maybe highlight where the discretionary portion of that CapEx, where the incremental Spending or discretionary amounts are being directed. Thank you.

Speaker 2

David, this

Speaker 8

is Carey. Thanks for the question. So I think I'll start with the last point around discretionary versus, I guess, I would call maintenance.

Speaker 2

So I think the most important thing

Speaker 8

to note is that the maintenance CapEx spend in this business It's really unchanged over the last couple of years, call it $10,000,000 $15,000,000 annually. This $70,000,000 that we guided to this year. We guided to something higher than our run rate last year as well, our historical run rate last year as well. We expect that after this year we're back well under 2% of sales, call it $50,000,000 plus or minus.

Speaker 2

The things we're doing this year

Speaker 8

are making CapEx investments to support those strategic initiatives that Ben had talked about a few questions ago. So we're making an investment In China, it's for Power Electronics. We're making investment in India and a few other markets where we're seeing long term demand from customers to be present, Both for production and for research and application labs. So again, I expect it to come back down closer to call it 50, Assuming we can spend everything this year and one of the challenges has been actually getting projects done because of availability of materials that's starting to improve, but we're not through that yet.

Operator

There are no further questions at this time. I will now turn the call back to Ben Glicklitsch for closing remarks.

Speaker 2

Thanks very much. Thank you for joining. We look forward to seeing you in the coming weeks months. Have a good day.

Operator

Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect.

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