Mativ Holdings, Inc. (MATV) Q4 2021 Earnings Report, Transcript and Summary

Good morning. My name is David, and I will be your conference operator today. At this time, I would like to welcome everyone to the Neenah Q4 2021 Earnings Conference Call. Today's conference is being recorded. [Operator Instructions] After the speaker's remarks, there will be a question-and-answer session. [Operator Instructions] Thank you. Kyle Anderson. Vice President of Corporate Strategy and Investor Relations, you may begin your conference.

Good morning, and thank you for joining us on Neenah's Q4 2021 earnings call. With me today are Julie Schertell, Chief Executive Officer; and Paul Desantis, Chief Financial Officer. Julie and Paul will discuss recent activities and results as well as share thoughts on our full year highlights and our strategy as we look ahead. We issued a press release covering financial results yesterday afternoon, and hopefully you’ve had a chance to review that information. Following our prepared remarks, we'll open up the call for questions. As a reminder, our comments include forward-looking statements. Actual results could differ from these statements due to risks outlined both on our website and in our SEC filings. As we get started, a few opening highlights. In the fourth quarter, we continued our top line growth momentum and set another quarterly record with net sales up 28% over last year. Adjusted earnings were $0.45 per share, excluding $0.86 of unusual cost. In Q4 2020, adjusted earnings were $0.87 per share and excluded $0.28 of unusual costs. Details of these adjusting items along with the reconciliation to GAAP amounts can be found in our press release. With that, I'd like to turn it over to Julie.

Thanks, Kyle and good morning, everyone. I'd like to start with our highest priority, employee safety. Our strategy of proactive risk identity continue to show strong progress. Our recordable rate decreased by 30% during 2021 and I'm pleased to say that incidents are at an all-time low. While great to see this improvement, there's still work to do to get to zero injuries across all of Neenah. Fourth quarter results demonstrated continued strong top line growth and margin improvement. Total volume was up 22% with fine paper and packaging up 16% and technical products up 25%. We delivered sales of almost $265 million up 28% from last year. This is our second consecutive quarterly top line record, a clear indication that our growth focus and efforts are being realized. From a bottom line perspective, as expected, margins improved from Q3 to Q4, but continue to be challenged by a number of factors. Input cost continued to increase throughout the quarter and to a greater degree than originally anticipated. Energy costs, particularly in Europe were volatile and came in higher than expected. Ongoing supply chain disruptions, primarily shortages of several specialty chemicals combined with labor availability challenges, negatively impacted manufacturing costs. In the fourth quarter, the net impact of selling prices and raw material costs reduced operating margins by over 500 basis points and EPS by over $0.50 per share versus the prior year. We have aggressively taken a number of actions to address these input costs and operational challenges and can clearly see some early improvements in 2022. Adjusted operating profit margin increased in Q4. Although short of our long term targets, we saw continued meaningful traction and sequential improvement driven by increased volume and price. In fine paper and packaging, we were pleased to see adjusted margin improved from 7% to 15% reflecting the strength of volume growth, strong mix and pricing initiatives. As expected, margins and technical products declined due to ongoing escalating input prices, but this will be addressed primarily by our annual filtration pricing adjustments that took effect in January. We have also recently taken additional pricing and surcharge actions in most of our categories to address additional inflationary pressures seen late in the year. We've made progress, addressing the labor shortage by increasing staffing in our facilities to match the level needed to satisfy the opportunities of our robust topline growth, while accelerating our automation efforts. Our R&D and procurement teams have continued to work closely with customers to qualify alternate products to address the impact of raw material availability. As we mentioned last quarter, we have reformulate or identified alternate sources for approximately $200 million of annual sales. As a result, we can now offer our customers an expanded set of product options. Sales mix, which had been unfavorable over the prior several quarters, primarily driven by raw material availability was neutral in the fourth quarter, evidence of the improved raw material availability and substitution improvements. Finally, we've streamlined our fine paper and packaging portfolio to simplify operations and improve our cost position, including over a 30% reduction of grades and we're seeing early benefits in 2022. So while it's a challenging environment, we've been aggressive in our actions and to position the business for further growth and margin improvement in this year. Lastly, in 2021, we saw meaningful in our ESG effort, including continued reduction in energy usage, water consumption and greenhouse gases. We received recognition from leading sustainability rating agencies, including the EcoVadis Gold Medal in Spain and Silver Metal in all other locations. With that, I'll turn it over to Paul to cover financial results and then I'll wrap up with some comments on our strategy.

Thanks, Julie. First, let me begin with a quick review of the fourth quarter financial statements. Consolidated sales reached $264 million up $57 million from last year's comparable quarter. Itasa accounted for $38 million of sales in the quarter. We saw very strong growth in several areas, including all of fine paper and packaging, industrials and specialty coatings. Volume accounted for growth of 22% overall with Itasa contributing 18% while price accounted for another 6% partially offset by currency of around 2%. Both segments demonstrated continued volume growth. Adjusted earnings were $14 million compared to $21 million in last year's fourth quarter. Favorable pricing of $13 million was offset by input cost increases of $25 million netting an unfavorable $12 million. Transportation and manufacturing costs were also unfavorable. We were able to offset a significant portion of that gap through favorable volumes, including volume and margin from the Itasa acquisition. Consistent with our discussions over the last few quarters, the input cost and supply chain environments remain volatile, but we expect to see margins improve over time, as our pricing actions, strong volume and efficiency initiatives gain momentum. Technical product sales were $167 million up 20% from 2020 and up 3% excluding Itasa and Appleton. Adjusted earnings were $6 million down from a very strong $18 million last year, reflecting the impact of raw material cost increases along with labor, transportation and chemical availability. Technical product continues to bear the brunt of the input cost increases and was the most impacted by contractual timing with filtration annual pricing, which took effect January 1. Fine paper and packaging sales were $98 million up 29% from last year's level and adjusted earnings were $12 million for the quarter, up from last year's $8 million. We continue to perform above our original expectations of recovery, reflecting the strength of the commercial print, packaging and consumer products businesses. In both segments, we believe we're on track to offset the 2021 unrecovered input costs as well as the expected inflationary pressures during 2022. To summarize our pricing and cost impacts for the quarter, our pricing actions accelerated, and we saw $13 million of pre pricing benefit in the fourth quarter compared to $8 million in the third quarter and that increase continues to gain momentum with additional pricing actions in 2022, especially in filtration. During the fourth quarter, we saw input costs, rise even higher than our expectations entering the quarter to about $25 million over the prior year. For the full year, we experienced almost $47 million of increased input costs with pricing of $19 million overall, $13 million of which we realized in the fourth quarter as pricing momentum continued to take hold. Regarding Appleton, the facility was closed at the beginning of the fourth quarter, and we expect this action will save us approximately $7 million to $8 million annually. A few other key items to update; first in late January, we had a fire above the dryer section of the paper machine in our manufacturing facility in Brownville, New York. Fortunately, and most importantly, there were no injuries. Thanks to the rapid response of our team. With the help of local first responders, the fire was quickly contained. This is one of our smaller facilities, and we're continuing to assess the timing of a restart. We've moved production into other facilities where possible, but we're expecting unfavorable profit impact in the first quarter, primarily in fine paper and packaging. The business is insured and we currently do not expect material losses for Neenah. We will have more details during the first quarter call. During 2021, we took actions that resulted in more than $80 million of adjustments to earnings. Those included the facility closure, restructuring our debt, buying Itasa and lastly, I want to highlight actions we took to simplify our pension position. During the quarter, we recorded a non-cash charge of $17 million related to pension settlement. As a continuation of our strategy to reduce our pension risk and obligations, we purchased an annuity for the retirement benefits of approximately 1400 retirees. This transaction was funded from trust assets and did not require any cash outlay from Neenah. We expect to save more than $7 million over the life of the pension plan through reduced administrative costs all without impacting our retirees. Turning to the balance sheet and cash flows, as of yearend, liquidity remains strong. 2021 cash flow from operations of $53 million was down from $93 million for 2020. The difference continues to be driven in large part by working capital, reflecting the strong top line, along with higher foreign income tax payments. 2021 adjusted EBITDA was $117 million compared with $101 million in 2020, as we saw the benefits of our continued growth and the impact of the Itasa acquisition offset by higher input costs not completely recovered by pricing realization. Adjusted net leverage was 3.7 times at year, end up slightly from Q3 reflecting the impact of the input cost increases on EBITDA. 2021 CapEx was $28 million versus $19 million last year as spending return to more normal levels after a tight 2020 for 2022. For 2022, we expect to be at 4% to 5% of net sales as we invest for growth. Our annual effective tax rate was a benefit of 16% in 2021 and in 2020. Both periods were impacted by the unusual costs, which resulted in pre-tax losses each year. Absent these unusual items, our tax rate on non-GAAP earnings was 21% in 2021 and 19% in 2020. This increase was driven primarily by higher non-GAAP earnings in 2021, which slightly diluted the impact of new R&D tax credits. Looking ahead, 2022 is starting off with continued inflation and volatility in raw materials, energy, labor and other supply chain elements. Fiber prices started to moderate in the fourth quarter. Recently that moderation is reversed course and there is now upward momentum in part due to transportation issues. Once these issues are resolved, we would expect gradual declines. In terms of specialty chemicals, we're seeing cost declines from the 2021 peak in some base materials used as inputs to many of our chemistries, notably due to betadine and propylene, but these costs remain elevated from pre-pandemic levels and many downstream chemicals are still very tight. Energy cost volatility continues to be challenging, especially in Europe where aggressive increases were seen in late 2021. We're implementing surcharges to cover the increased costs. From a supply chain availability standpoint, widespread supply shortages are much improved, but a few key materials are still structurally short of our demand. In most of these cases, supply constraints are expected to ease in the coming quarters. That said other near term supply challenges remain plentiful such as roadblocks at the border and COVID impacts at our suppliers. Our teams remain active and agile to adapt to the changing conditions, but near term manufacturing efficiencies will continue to be impacted. With this backdrop, Q1 will be characterized by a strong top line driven by growth in both segments, including the impact of the January 1 filtration pricing agreements and pricing increases broadly across the rest of the organization, tempered by continued input cost and supply chain issues previously mentioned. Combined with the loss from the Brownville fire, where we could have up to $3 million of impact, Q1 performance is likely to be more consistent with Q4 of 2021 and below a comparable Q1 of 2021 where the input costs and supply chain environment were more normalized. As the pricing momentum continues and supply availability expands, we expect to see margin improvements over the course of 2022, particularly in the back half of the year. That said, no matter the timing, we have strong pricing and other cost containment actions in place. We're seeing positive momentum, have a strong volume demand and top line, and our confident that over time we'll achieve our margin of jet. And on that note, I'll turn it back to Julie.

Thanks, Paul. As you can see, we have very focused initiatives to drive performance in our business. Now I'd like to spend some time talking about how we're activating our strategy for the future. As we've mentioned on previous calls, we have long term goals for Neenah, 5% top line growth, 10% bottom line growth and greater than 15% EBITDA margins. We have a clear strategic framework to achieve these goals focused on our four key growth platforms; filtration, specialty coatings, engineered materials and image and package. Within this framework, we disproportionately focus our resources and efforts allowing us to lever our technical expertise and customer relationships into logical growing markets in which we have a strong right to win. We activate these growth ambitions through our efforts and innovation, the Neenah operating system, organic capital investments, and M&A. First, I'd like to highlight a couple of developments regarding our organic investments. I'm pleased to announce a €25 million investment in meltblown capacity in our German filtration facility. As we continue to grow in industrial, air and HVAC filtration markets, our three existing meltblown line are approaching full capacity utilization. This capacity expansion supports some of our highest margin business and will support our continued strong growth trends in targeted filtration markets. We expect to start up this new asset in early 2024. This expansion is in addition to the $13 million investment we previously announced to increase our specialty coating capacity with another state of the art assets in our facility in Mexico. This project is underway on track and expected to start up midyear of 2023. Moving now to innovation, we revamped our innovation process in 2021, aligning our project with our growth platforms and connecting our key efforts with megatrend themes, such as sustainability and health and wellness. While early, we are beginning to see increased traction from our efforts. A couple of recent examples, during the quarter, we launched a new specialty coating application used in radiation protection clothing for medical personnel. Also in the fourth quarter, we joined the Soteria Battery Innovation Consortium, a global organization promoting light, safe and cost effective solutions for lithium ion batteries. Our innovation team will leverage our technologies and material science knowhow for electric vehicles and other battery markets. M&A also continues to be a priority for our business. We have a very active pipeline and we proactively approach targets that we feel would accelerate our strategy through capability, scale or greater market access. The Itasa acquisition was a great addition in 2021 and is performing ahead of plan. We couldn't be happier with the strong talent and the financial results. We look forward to using the Itasa transaction as a foundational acquisition as we grow the specialty coatings platform. Lastly, we continue to make solid progress on our deployment of the Neenah operating system. Over the course of 2021, we implemented the approach at some of our largest facilities and we're pacing ahead of target. We've seen this benefit in our safety performance and we've unlocked capacity on some of our key assets supporting our top line growth. As anyone who has lost a lean type of initiative, such as the Neenah operating system knows, it is a journey and I'm encouraged by the early traction. In summary, 2021 was the foundation building year for Neenah and we took decisive and significant actions to drive value in 2022 and beyond, including achieving record safety performance, delivering 30% top line and 16% adjusted EBITDA growth with volume growth in both segments, taking aggressive pricing actions to yield an expected net $25 million of benefit in 2022. Acquiring Itasa a GDP plus growth business with mid team EBITDA margins and strong cash flows, providing a foundation in specialty coatings, revamping our innovation process and demonstrating our ability to quickly pivot by sourcing alternate materials and reformulating about 20% of our entire portfolio, closing our Appleton facility generating an expected $6 million of incremental savings in 2022, increasing organic growth capital investments in both filtration and specialty coating, refinancing our debt to give us a more flexible capital structure and lower interest expense, implementing the Neenah operating system to drive significant long-term value creation in our manufacturing facilities, driving improvements on our ESG initiatives and raising our dividend for the 11th consecutive year. We are expecting to see the benefits of these actions as we move through 2022, and we'll continue to remain agile in our approach to the markets in which we compete. I'd now like to open the call for questions. Hi, this is Julie. If you can hear me, we would have questions.

Hi, can I ask a question?

Yes. Thank you. I think our operator may have dropped off for a second.

Hey, Julie, it's Jonathan Tanwanteng at CJS. How are you?

Hi, John. Good. How are you?

Doing well? Thanks. for taking me. Not, sure operator that's okay. I was just wondering if you could clarify that Brownsville comment of a $3 million impact, is that an EBIT impact or a revenue impact? How should we think about that?

It is a bottom line impact and that's our current expectation, John. It happened in late January. So we're still working through testing the equipment for damage and we're transitioning a number to other facilities. It is covered by insurance as well. So that's our current estimate for Q1 bottom line impact.

Okay, great. Thank you for that. And then Julie, you mentioned the $25 million net pricing benefit. I assume that's just catching up to the $47 million from last year and the $13 million you realized in '21. Should I take that to assume that, ex anything else you'll see $25 million better just from pricing alone this year, or has inflation already gotten away from that in the first two months of the year so far?

So what we're seeing right now, John it is an effort to catch up from 2021 and then run forward and recover in 2022, based on our current view of inflation. I think all of us are seeing the volatility moving pretty quickly every day and in different areas than we've seen traditionally to a greater degree like energy, particularly in Europe and some of our specialty chemicals. So we are expecting to recover. We're seeing that recover really -- recovery really nicely in our fine paper and packaging business. It's been a little bit more lagged in technical products where we have annual agreements. We also made some changes in our pricing mechanisms this year and how we approach pricing. So meaning in filtration where we have annual agreements that go into effect on January 1, we've made those semi-annual for the most part this year, which gives us greater flexibility to have another round of pricing discussions, should we need to. And then in our industrial solutions business, which is heavily driven by pricing model fires, we've changed those to include other elements such as energy and some of our specialty chemicals and added surcharges again, giving us greater flexibility as we move through this year to be a little bit more agile in our technical products business on pricing. So even as it unfolds in Q1 and we see additional raw material cost, we're addressing that with additional pricing actions and surcharges.

Got it. That helpful, and it's good to hear that you're able to change your filtration price a little more frequently then yearly now. Paul, can I get a sense of how much inflation is outpaced the price, maybe you set in January 1 at this point already? It just, I don't know if there's any metric that we can use. You usually give these your inflation recovery costs or you have at least for the last two or three quarter. Yeah,

Well, John, I have a -- so, I think what we're thinking about for 2022, we said a net $25 million a favorable benefit in what we're what we're looking at right now is pricing of about $60 million and costs rolling over particularly the first half of the year of $35 million. So if you think about how the cost increases unfolded in 2021, they really started in the second half of the year and so we've got a rollover of that effect. So Q1 and Q2 we'll see the higher cost increase. We've got the momentum on our pricing coming through and so net, net, we're expecting the $25 million as we work our way through the year but it'll unfold quarter by quarter a little bit differently.

Okay. That's helpful. Thank you for that. And then finally I was wondering if you could talk about just the labor situation. I know you had some short supply in the technical business, I assume that can't be getting better just given the COVID wave earlier this year, labor, wage inflation, just give me a sense of how you're dealing with that and when that bottleneck improves for you guys. And then kind of what the timing of that is?

Sure. So when we were addressing labor, it was a combination of labor availability, raw material availability, inefficiencies that are created in our manufacturing environment by having new operators running very challenging sequences as were hand to mouth on some chemicals that results in extra waste and training costs, loss efficiencies and over time. I would tell you, staffing is stabilizing and so we're seeing a moderation in some of those supply chain constraints both from a labor standpoint and on some of our most key chemicals. We've increased staffing levels in anticipation of higher turnover. We've implemented new training programs and retention programs, and we're accelerating our automation efforts to pull in some projects into our capital list to move more quickly towards automation. So we are seeing some stability more recently, all in that impact was about $8 million in 2021 and we believe we'll continue to climb out of that as we move through 2022, it'll get better as the year moves on. We're not actually seeing facilities going down or losing shifts for the most part because of COVID. It's more turnovers, availability of labor and raw material availability.

Okay, got it. If I could squeeze one more in just on that bit you usually, or you have in the past, given a bogie for SG&A, how are you thinking about this here with just the inflation in labor cost?

Yeah, so right now, our SG&A estimate in total is about $120 million for 2022 and keep in mind when Itasa came over, they brought about $20 million in, so on a Neenah equivalent basis, roughly a $100 million going back to time for total SG&A

Okay. Got it. Thank you guys.

[Operator instructions] Okay. Next we'll go to Chris McGinnis with Sidoti and Company.

Thanks for taking my questions. Appreciate it. I think just to start off around the pricing, can you just talk about how your customers are handling the price increases and has there been any pushback or how are those being implemented given the timing and just the acceptance?

Sure. Yeah. I would tell you, no one loves the magnitude of the increases we're taking and the multiple increases we're taking. I will also tell you intellectually they understand them because they're being impacted across their business in a similar manner from many suppliers. And obviously we're hearing and seeing inflation all around us in the markets, in which we compete. Our traditional paper customers can pass through pricing and we have the leading brands in that space. So that business implements and executes and realizes the value very quickly. We want the customers that are on modifiers and agreements are more of a negotiated process that we go through. So it's always tough conversations as you would imagine, but I think the team has taken bold actions and made significant structural in our pricing strategies as we head into 2022, that will be responsive to the market and create some agility for us that we need in the dynamic market that we're competing in.

And just with one of the answers earlier around your changing up the structures of the contracts on pricing, how are they open to that conversation given I think historically it's been on an annual for a long time.

It's a challenging conversation and I think right now is a time when customers remember how you treat them. And it's important that we communicate in an open, honest and transparent manner and we work to meet our customer needs and Neenah does that really well. And we've mentioned a couple times the innovation and reformulation we've used to ensure that we keep our customers in stock, even when supply has been very challenged. There's clearly openness and warmness associated with that from a customer relations standpoint. So, it's not easy to do difficult conversations, but it's also the environment we're in. And if nothing else, this environment creates the opportunity to say, we cannot do things the same. We have to do things dramatically different, and we need to take more bold actions than we have in the past in this area. So I think again, intellectually, they get that, and then it's just working through the emotional conversations. Even those most emotional conversations and some of our largest customers where we're challenged and taking those actions, they're still working with Neenah very closely and giving us new business. We've won new business at our largest, most strategic customers and have programs out 10 plus years with some of them, for opportunities to grow further.

Just around the cost, I don't know if you can give this, but what was the organic growth that you saw in Q4 with Itasa?

Total excluding Itasa you mean? Or total growth, total full year growth.

Sorry. I might just specifically on Itasa the growth rate, you're seeing there, if you did mention, I apologize,

It's almost in a low double digits area. So they've grown for about 8% over the past 10 years consistently. And we expect, that 8% to 10% growth rate to continue. And that's part of the rationale for investing in the new coder in Mexico is to continue to unlock the capacity we need.

Have they been hit with any of the supply chain issues or the other inflationary environment that you've talked about?

Yes, they have definitely been hit with the supply chain issues from an availability standpoint, with significant COVID surges and with the energy volatility that we're experiencing primarily in Europe. That is a team that continues to exceed our expectations. So having record performance, top line and bottom line this year is really spectacular to see, and I think a great way to further solidify, that's the foundational acquisition that we'll continue to build upon to build out our specialty coatings platform.

Great. And then just to two or three more quick ones, the investment that you're making in Europe, congrats on, getting those facilities up as high as they are in terms of operational. Is that demand that you see coming in that you're working with now, can you just talk a little bit about the investment itself, what you're seeing?

Sure. It is exactly what you described. So a couple things, it's to support our highest growth, most profitable business, our filtration business. It's the fourth sister assets in our German filtration facility. So it's very similar to the other assets in that facility. Its driven by growth in industrial filtration, air purification, air pollution control HVAC and its growth primarily with existing customers and existing products that is qualified on our existing three melt blown lines. So we're excited about the investment opportunity. It will start up in '20 mid 2024 and we're looking forward to, to growing that business more.

Great. In one of the new product offerings you were talking about, you talked about the EV solution. Can you just talk a little bit about what that is, and I know you have a lot of little different things happening with new products, but can you just explain that in the potential there?

Sure. I mean as, as a reminder, EV less than 2% of technical products, business sales goes into new cars and about 4% of filtration. So we're primarily secondary market and, and heavy duty, but we want to make sure that we're engine agnostic and that we continue to move forward with solutions for our customers to meet their needs as they continue to evolve. So the consortium that we've joined in the leadership team that we've joined as a part of that, and we work together to develop those unique solutions and with our customers to develop their unique solutions for the EV market.

And then last question around the potential M&A just the balance sheets improving this year should be better. Just, just your thoughts on the M&A environment that's out there? Thanks.

Yeah, it seems to be a healthy M&A environment. And I think Neenah has a great list of targets that we continue to, to review and work on and look at give in our current leverage we're at about 3.7, we would not be looking to do something as large as like an Natasa[ph], but we'll continue to build upon our growth platforms as we continue to bring our leverage down.

Great. Thanks for taking my questions and be logging Q1.

Sure. Thank you.

And next, we'll go to Gokula Kannan with Infosys.

Good morning.

Your line's open. You may be muted

Morning.

Good morning.

Hi, this is Dan Berlin from Elmwood. I'm not sure if they took my name or not, but I'm going to ask my questions now while I have the -- while I have the floor. Thank you guys for the call, and I just wanted to ask quick question, just conceptually. So there's a lot of moving parts last year. So Julie, as you pointed out, sort of all in for the year, there was $117 million of EBITDA. And then if you included, I passed this contribution for the first quarter that would've been another $5 million and then savings some Appleton would've been six. So you put that all together. You're at like $128 million of sort of like a pro-forma type EBITDA number. And then you noted that $25 million of pricing actions were, were like, I guess I want to make sure I understood this correctly. There was $25 million of net pricing actions that will benefit 2022, but how much of those were reflected in 2021 versus how much of those ha haven't been reflected yet and will only sort of begin flowing through in 2022?

Sure. But I'm hoping I understand your question correctly, but I think what you're asking is pricing last year versus this year, what the incremental amount of that is. Last, we ended up taking about $20 million of pricing this year. What we have planned and announced and are implementing is roughly $60 million of pricing of additional pricing. So that net 25 is net of our expectation around input cost inflation, and an effort to recover the shortfall from '21. And run ahead of what we're seeing in '22.

And that reflects the filtration annual price increases.

That is correct. Yes.

So, so that $117 million plus $25 million for Itasa’s, first quarter contribution, plus the $6 million savings from Appleton is $128 million plus $25 million net would be -- which is reflects higher cost in the first half of the year. I think. Right? So that gets you a$148 million -- $153 million pro-forma adjusted. If you think about the price impact, the impact of, of price increases. Am I -- I'm not asking for guidance. I just want to make sure.

Yeah. And I would just remind you, I think you're taking all of the positive that well,

That's, that's what I want to get let's and then I want to make sure that I understand all the negatives. So, so that's a $163 million, but that includes higher costs as well. I would think in the first half, because like you said, it was $60 million of pricing net of $35 million of higher costs. So what are some of the other are headwinds to sort of net against that number? Which to, to think about more like on a normalized basis?

Sure. I think it does include the higher input cost. What it doesn't include are things around continuing challenges on labor availability, raw material availability, getting our new operators up to speed, getting our efficiencies back to where they've been because we have new operators and we're seeing extra waste and training cost and overtime. Availability of chemicals so that we can run more efficiently in our facilities and it doesn't include the fire in Brownville that we mentioned that happened in late January, that we're still assessing and testing the equipment for damage. I would say the other thing is there's a lot of volatility particularly in energy and particularly in Europe. And so it's moving pretty and can move pretty quickly. We do forward by a portion of that, but not the majority of it. So there is some volatility that we'll see from that as well.

Okay a lot. So all of those issues, how much of that was reflected in the second half of 2021. So we'll put the first half away, but when, when you know, a lot of labor issues did start perking up and obviously all the inflationary issues. So we, we saw a lot of that already begin sort of rear its ugly head in the second half of the year is a lot. Do you think that it's going to be materially incremental to what we saw on the second half of '21 or will it just be so, and it just has to flow through for the first half of the year?

Yeah. Dan, where we saw it really start to hit was in the fourth quarter and we calculated about an $8 million impact from those, those different areas. I mentioned about five over five of that was in the fourth quarter. And then we know, which occurred on January one that changed everything dramatically. So we're continuing to see those challenges. Our labor market is starting to stabilize, but it will take us some time to come up to speed with new employees, to get chemicals lined out, to get some of the raw material availability issues lined out. So Q4 was where we really felt it. I expect to continue particularly in the first half of 2022.

Got it; so, maybe a better thing that a way to think about it so that it embeds a lot of those other issues would be that if you annualize the fourth quarter and provided some benefit for Appleton and the net pricing benefit, is that maybe a better way to look at it?

Yeah. Dan, I think part of what we're trying to do is we're trying to say, look, we've done all these foundational things in 2021 to set the business up, including Appleton, like you mentioned, including theta acquisition, including trying to get out ahead of pricing in the back half of the year. I don't think we really want to speculate on what that's going to look like each core orders we roll through 2022, because like Julie said, we've got an expectation for, for addressing the efficiency issues that we talked about. So that's underway. We've got we've got all sorts of pricing actions that we've got going on. But it's an unstable inflationary environment, I think as you know, out there right now. And so as we're trying to get work our way through the year, we're putting the foundational pieces in place and we're going as aggressive as we can against the, the price pricing for, to offset all the raw material costs and impact. But we really don't want to put ourselves in a position of trying to come up with a number that we would then be talking about externally for where we think 2022 could be given the amount of volatility and uncertainty in there. So we're, we're telling you each one of the component pieces, not going to tie that together into a number and say that's our number.

Yeah. I appreciate that. And as a Public Company, I would never want to back you into that. That's really not. I'm, trying to figure out as a snapshot in time because pricing actions were severely lagged because the annual contracts and so 2022 on a net basis should look different. And, and I agree that there's a lot of other things kind of flowing through. And so what I'm really just trying to figure out is from here today, if I was to just look at today, just the net impact of those pricing impact. And then I can sort of, we can all sort of think about all the other things, but, and so that's ultimately my objective, cause I don't think that if you look at the fourth quarter that, and it was roughly $25 million of EBITDA, to me, that's clearly not indicative of what the business looks like. Even when you cross over from '21 to '22, because the material changes to your pricing agreements and well,

And that's right. And I think that -- I mean we -- I think we made this comment. I know I made it in my prepared remarks, but if you look at the first quarter of 2021, or you look at the first quarter of 2020, so before COVID hit and before we had all this crazy raw material inflation, we were sitting at mid-teen EBITDA margins in volume in the business, which is our, our goal we want to get back to. So I think the question is, and, and since that time we've repositioned the business with the Itasa acquisition, with the closure of the North American facility that, that I think helped strengthen the foundation of the business. So the question is, when do we get to that kind of margin again? And that's going to depend a lot on what's happening with that unstable inflationary environment. If it, if it calms down in the back half of the year, then we've got all these pricing initiatives and that will look one, if it continues going up all year and we have to continue to chase it, it's going to look like something different. So the business itself can perform and has performed at those levels. And the question I think from our point of view is we're doing everything we can to address the issues that we see and get out in front of them. And we know what the business can do from a performance perspective.

Yeah. I, I agree with, with Paul, I think what we're trying to message is we expect progress toward our goal. As we work through 2022 demand is very strong. Our assets are running full, we've taken aggressive actions in pricing in '21 and more aggressive and bold actions in '22, the issue is we are not in a stable supply chain or inflationary environment, and that is really the wild card. And our goal is to take the actions of things we can control and remain and improve our agility and flexibility in this environment that is more volatile than we've seen in the past. I believe all those things combined means we will continue to make progress toward our goal from a margin standpoint.

Excellent, I appreciate you guys walking through that with me. Thank you.

Sure. Thanks

There no further questions. I'll now turn the call back over to Kyle Anderson for any additional or closing remarks.

Thank you for your time today. To recap demand for our products is strong. However, the global supply chain and manufacturing environment remains challenging. We've taken a number of actions to address these near term pressures, to support recovery of our margins. And we continue to advance our strategic agenda, making investments to position the company for long-range growth and value creation. We're looking forward to updating you under to progress next quarter, and we'll also be attending the upcoming JP Morgan high yield conference on March 1st. Thanks and have a great day.

This concludes today's conference call, you may now disconnect.