Welcome to the Selenese Q2 2026 Earnings Call and Webcast. At this time, all participants are in a listen-only mode. The question and answer session will follow the brief remarks. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. Please note that this conference is being recorded. I will now turn the conference over to Bill Cunningham. Thank you, Bill. You may begin.

Thanks, Daryl. Welcome to the Selenese Corporation second quarter 2026 Earnings Conference Call. My name is Bill Cunningham. Vice President of Investor Relations. With me on the call today are Scott Richardson, President and Chief Executive Officer, and Chuck Kyrish, Chief Financial Officer. Stellan East distributed its second quarter earnings release via BusinessWire and posted prepared comments as well as a presentation on our Investor Relations website yesterday afternoon. As a reminder, we'll discuss non-GAAP financial measures today. You can find definitions of these measures as well as reconciliations to the comparable gap measures on our website. Today's presentation will also include forward-looking statements. Please review the cautionary language regarding forward-looking statements, which can be found at the end of both the press release and the prepared comments. Form 8K reports containing all these materials have also been submitted to the SEC. it. With that, Darrell, let's please go ahead and open it up for questions.

Thank you. We will now be conducting a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. We ask that you please limit yourself to one question and one follow-up question. Our first question has come from the line of Patrick Cunningham with Citi. Please proceed with your questions.

Hi, good morning. Thanks for taking my questions. I was hoping you could talk through the normalization of some of the supply-related opportunities in the Acetyl chain, perhaps a bit more pronounced than we expected. How would you characterize the operating environment, Western Hemisphere versus Eastern Hemisphere? And we've also started to see some upward movement in Asia spreads in recent weeks. So, you know, what is driving that? And is any of that contemplated in expectations for the balance of the year?

Yeah, thanks for the question, Patrick. You know, I think our team showed a really strong resiliency and flexibility in the quarter. And I think, you know, it was evidenced by, you know, the opportunities we had that the global production and supply chain network that we have here at Selenies, really in both businesses, you know, gave us some benefits in the quarter. And, you know, in Asciteal Chain specifically, the team, you know, took actions, you know, as we got the end of Q1, the early part of Q2, to ensure that we're going to be able to provide our customers with a reliability of supply. And I think we certainly did that kind of up and down the value chain, particularly in, you know, parts of the world that were more acutely impacted by, you know, the supply chain crisis like Europe. Team did a good job of that. You know, we called out an expectation of moderation in the second half of the year, and that was, you know, contemplated in kind of our $6 guide back when we did our call in May. You know, I think, you know, as we look at things today, I wouldn't say that moderation has been any more acute than what we expected. I think, you know, what we have seen happen is just some changes a little bit in the environment, and we ended up getting a little bit more benefit in the second quarter than we had originally guided to. Some of that was a slight amount of EM pre-buying that we called out. You know, Q3, maybe a little lower than we had originally guided to, really driven by the fact that we've been able to accelerate the plant closure in Lanakin and, you know, pull forward a little bit the EM closures as well, which is driving more of an inventory absorption hit in the second half than originally anticipated. In addition, because Ibn Sina didn't operate in the second quarter, for much of the quarter, our equity earnings is going to be about $10 million lower than we had originally anticipated this year, which is all pretty much hitting in the third quarter. So that's really kind of that dynamic of Q2 to Q3. But from an expectation perspective, the moderation that we had anticipated is about as expected.

Understood. Very helpful context. And then just on the, you know, EM, you know, grow and fortify strategy, I know you've been calling out, you know, data centers, medical, electronics, and maybe it would be helpful to get some context, you know, on the base levels of revenue here of this potential growth platform. You know, how do you plan to, you know, grow and protect market share in these high-value applications, and what sort of long-term growth rates do you expect there?

Yeah, I think, you know, our overarching objective in the engineering materials business is to ensure that we're aligning what we believe is the unique capabilities and products that we have with, you know, a deep understanding of key end markets and having segment strategies that go deep. You know, the macro end uses that we go into, you know, when you look at them at a very high level, don't have maybe a lot of growth. But when you really dig in and get to some of the sub-segment areas, there are really great pockets of opportunities there. And we've been reorienting our team in terms of a focus standpoint now for more than a year to ensure that we can really penetrate these sub-segment areas. And so when you kind of look at electronics, for example, today that's about 10% of the revenue of the engineer materials business, but actually makes up about 10% to 15% of the contribution margin. that we make in the business. Medical is less than 10% of the revenue, but about 20% of the contribution margin that we make. So these two segments are not just, you know, foundational today for us, but where, you know, with the amount of growth that we're seeing and the work that we're doing to be aligned around the right customers and to be able to penetrate what we think is going to be kind of differentiated opportunities that, you know, we're going to be able to really have good, long-term, sustainable business and growth, you know, we think that sets up really nicely for the future.

Thank you. Our next questions come from the line of Gansham Punjabi with Baird. Please proceed with your questions.

Thank you. Good morning, everyone. You know, just as a follow-up to Patrick's question, and going back to the AC segment, you know, obviously, it's been a very volatile year. But, you know, Scott, as you sort of zoom out, you know, how have things changed relative to the pre-war baseline, as you think by the various product lines and, you know, geographies you have exposure towards? Just trying to disaggregate some of the complexity on a day-to-day basis versus, you know, from a high level standpoint, what's actually been happening.

Yeah, thanks, Gancham. You know, we've said for a long time that the majority of our profitability in the aceteal chain occurs in the Western Hemisphere. And this is not new. When we kind of look back over the last 15 years, you know, that kind of 80% plus profitability being generated by the West has kind of played out for, call it, 12 of the last 15 years. So this is not a new environment that we're in. You know, we did see, you know, margins in Asia kind of move up in the 2021 through 2023 timeframe. But outside of that, this has kind of been the environment we've been dealing with for a long period of time. And the team has kind of really been pivoting the operating model in a way, you know, with more and more of our tons being sold in the form of downstream derivatives because we have more differentiation there. You know, we're able to create some more unique innovation opportunities and to be able to drive, you know, through and be able to keep the profitability where it has been, even where, you know, the macro backdrop isn't strong. But we have this ability to flex up where needed. And with the capacity that we have in the Western world and be able to flex that like we did in the second quarter, this kind of goes back to that coiled spring analogy that I used last quarter. You know, when we have the ability to flex that up, we will. And we see the benefits that come from that. You know, the profitability increase that we saw from from Asia from, you know, call it, you know, the end of February through to where we are today was very much short lived. And really, by the middle part of Q2, we were kind of back to pre-war margins. We are not, you know, back to those pre-war levels from a margin standpoint in the Western world. And we expect, you know, the markets to remain relatively constructive here through the balance of the year, albeit, you know, supply chains have found a way to normalize to some extent. And so, you know, while product may not be flowing out of the Middle East, it is flowing, you know, from other places. And so, you know, that does create, you know, some more compression in the margins, but they still are at higher levels in that business. And the team continues to do everything it can to contract business, you know, where we were able to get additional business because of our reliability of supply. We're really partnering with customers to be able to get business under contract for next year and beyond.

Okay, thanks for that, Scott. And maybe a question for Chuck on, you know, free cash flow and the $700 to $800 million guidance for 2026. You know, how have the moving parts there, working capital, et cetera, changed relative to your view three months ago as it relates to that guidance?

Yeah, thanks, Ganshan. You know, not a lot of change. We're very confident in the free cash flow range that we've put out there. You know, in the second quarter, $140 million of free cash is actually pretty good considering the amount of working capital we've built up, you know, in the quarter, almost $200 million use of cash in the quarter. Understandable, it's basically accounts receivable. You know, we're set today at year to date, a use of cash of almost 300 million working capital. So that will normalize over the second half, Gonsham. And we're seeing that now. Right. So I think we've talked about, you know, earnings increase of this year benefiting free cash flow, you know, both in this year and next year. And that's still the right assumption. You know, right now, I'd probably say working capital for the year, Gonsham, is somewhere, you know, between neutral, meaning zero to slightly positive. So not a lot changed. I feel really good about the free cash flow range. And I'd also point out, though, that as we look ahead, you know, I would consider this $7,800 million of free cash flow as our sort of baseline sustainable level. As we look into next year, we're not done on our working capital reduction efforts particularly looking to take more structural inventory out of engineering materials we do expect cash costs of cost restructuring activities which is adjusted out of our EBITDA those will continue to decline a bit next year and again we do expect some of the benefit of 26 to 27 so confident in the free cash range of this year and I would really consider that sort of our baseline, sustainable level over the next few years.

Perfect. Thanks for that.

Thank you. Our next questions come from the line of Jeff Sakakis with J.P. Morgan. Please proceed with your question.

Thanks very much. Your acetyl chain volumes were flat year over year in the quarter. Why didn't they grow in that I would expect that in the June quarter, you had capacity available, You were low cost. There are competitor outages. You know, why wasn't volume better?

Yeah, Jeff, I think a lot of it's mixed. You know, we've continued to see, you know, some destock in the acetate toe part of the value chain. So that volume was lower on a year-over-year basis, which was kind of offsetting the gains that we saw in the vinyls chain. So we definitely did, to your point, see higher volumes there, but you're seeing a level of offset, you know, from the acetate toe segment. You know, Q2 last year, we did see, you know, some level of seasonal improvement from Q1 into Q2 in kind of the emulsion side of things as well. So, you know, from a comp basis, it was already a slightly higher quarter, Q2 to Q2, but those are the dynamics that are playing out there.

In engineered materials exclusive of the divestiture, if you had to describe your volumes to the auto sector and all of your volumes to the non-auto sector, what would those growth rates be in the quarter?

Yeah. So auto kind of moves with builds for the most part, Jeff. So on a year-over-year basis, we saw builds down year-over-year Q2 to Q2. And so you saw an impact there of a few percentage points, which kind of is offset by the volumes we've seen in other places and some of our penetration into some of the growth areas of automotive, like we called out, like electric drive units. So I think, you know, when you kind of look at the macro side, auto down year over year, because volumes, you know, when you exclude the divestiture, were pretty much flattish year over year. And so those are kind of everything non-auto was up, and then auto kind of moving with bills.

Great. Thank you very much.

Thank you. Our next questions come from the line of David Begleiter with Deutsche Bank.

Please proceed with your questions. good morning uh scott on em you've announced a few price increases so where do you stand on price costs in q2 and what do you think will be in the back half the year on price cost in em yeah david i i said on the last call that you know one of the most important things that we were going to have to to get ahead of was the rising raw material costs in engineer materials And, you know, the team worked tirelessly to do that through the quarter. And, you know, we exited the quarter Q2, I think, on a really strong level from a price perspective that sets us up. And you saw kind of that margin expansion that we were able to get because of pricing that we largely got in the second half of Q2. And that positions us to be able to offset, you know, a chunk of that raw flow through that we're now seeing here in the third quarter. So I think, you know, we said this was going to be a second-half impact from raw materials, and that's definitely what we're seeing, you know, with raws. Raws have been a little bit volatile here. We saw them come down. You know, some raws went back up a little bit. And so we'll kind of see how this flows through into the fourth quarter. But we're definitely going to see some of that compression relative to Q2 happen in the third quarter as expected.

Great. And just on your Q3 guide, what gets you to the top of the range and what gets you to the lower end of the range? Thank you.

Yeah, David, we've got, you know, thousands of million dollar things that flow through our P&L every single quarter. And so there's a lot of different elements that, you know, can get you to the top or bottom end. And let me talk about kind of where our priorities are, because I think that kind of answers the question. I think, one, it is what I just answered. It really is kind of maintaining and being able to hold pricing to be able to offset as much of these raw material inflation that we're going to see in the engineer materials business. Continuing to be able to provide a reliability of supply to our customers in the Western world, really in both businesses, you know, as supply chains have a level of volatility still that are out there. And being able to move a little bit more volume, but also kind of maintain, you know, a higher level of margins than, you know, we had when we started 2026. And then, you know, I think the third area is continuing to focus on, you know, the productivity of the business, you know, really across both of our segments here and tenaciously working the cost side of that equation. And, you know, the growth piece is really now we're on a multi-quarter trajectory of being able to drive mix improvement in the engineer materials business. And so we fully expect that that will continue here. But I would say kind of those first three priorities are certainly critical to be able to come in at the higher end of the range. Thank you.

Thank you. Our next questions come from the line of Kevin McCarthy with Vertical Research Partners. Please proceed with your questions.

Yes, thank you very much and good morning. Scott, I think you indicated there was still some destocking pressure in the second quarter in the acetate tow business. Can you discuss the outlook for the back half there in terms of sales and earnings and the impact of the upcoming closure of Limalkin?

Yeah, I mean, I think the tow business saw some stabilization, you know, certainly ahead of the plan Lanarkin closure. But, you know, and we saw what I would call kind of a moderation of that destocking in the second quarter. You know, the order patterns certainly are beginning to normalize a bit versus where they were last year. But we do expect, you know, some level of de-stocking based upon conversations with customers to continue to occur here in the back half of the year. But certainly that pace of change that we've seen in the business has slowed considerably in tow. So we feel good about, you know, kind of where that goes as we work our way into 2027 because of the cost actions that we're taking. And so, you know, we expect to have the plant closed here in the quarter, which is faster than we had originally anticipated. That is going to drive an inventory absorption hit at a higher level in the second half of the year. But we felt like that was the right answer because it's going to give us, you know, a cleaner 2027. And those costs will certainly get some cost benefit in the fourth quarter. But those costs will certainly be much better in 27 than they were in 2026.

Very good. And then as I look at the balance sheet, it strikes me that you've done a nice job of deleveraging pretty consistently over the last five quarters or so. So my sense is that you are still evaluating additional opportunities for divestitures, Scott. So we would welcome any updated thoughts that you might have on that topic, as well as, you know, kind of your joint ventures and how you're looking at those strategically.

We are committed to the billion-dollar target of divestitures by the end of 2027, Kevin. That hasn't wavered. we are about halfway there after the Micromax transaction we announced last year and closed earlier this year. We're working a portfolio of items of various sizes, to be honest with you, some smaller, some a little bit larger. And we believe, you know, a combination of those will get us that additional $500 million. And we're still very confident about announcing at least one deal by the end of this year. So, you know, that's been very consistent for us and we feel good about how those projects are proceeding.

Thanks very much.

Thank you. Our next question is coming from the line of Frank Mitch with Fermium Research. Please proceed with your questions.

Thank you. I want to come back to the third quarter guidance, 135 to 175. You know, we're roughly 40% through the quarter. How much visibility do you have on your order books for the balance of this quarter?

Yeah, I think each business is different, and frank i mean acetils continues to be a couple of weeks of where you can build that confidence on on where the order books is that hasn't changed it's been pretty consistent for the last several years in the engineered materials business you know we have pretty good visibility three four weeks out um but you know that can also change a bit so i think you know that that's pretty consistent so we have a pretty decent idea how things will finish um out through the through August. But September is really important for us. In September, you know, the last month of every quarter tends to be the strongest quarter, particularly in the engineer materials business. And so the team's certainly prepared coming out of, you know, what is typically a slower part of the year in August with vacations in Europe as well as in Asia. And then, you know, is ramping up for a really strong September. So that's, you know, we'll have a lot better idea out here in the next two, three weeks, but that's kind of where things stand right now.

All right. Understood. And can you speak to the total company turnaround expenses that you faced in the second quarter and your expectations for the third quarter and fourth quarter for that matter?

Yeah. Yeah, Frank, really the biggest turnaround expense in the quarter was engineering materials, right? We talked about $15 million. That obviously will not reoccur. We do have some other smaller turnarounds, but that's the biggest one to sort of highlight. And if you think about that, as part of that was some pretty big moves in inventory absorption quarter to quarter. I mean, EM, if you think about Q1 to Q2, they had to offset about 65 million of total absorption plus turnaround and still more than offset that, obviously, by driving margin expansion. So yeah, I would focus on that But POM turnaround, $15 million or so, plus some other small ones.

So the balance of the year looks relatively clean in terms of turnaround expenses.

Yeah, that's right.

Thank you so much, Chuck.

Thank you. Our next question has come from the line of Vincent Andrews with Morgan Stanley. Please proceed with your questions.

Thank you, and good morning. I'm wondering if you could just give us an update on Frankfurt and what your plans are for the asset. said, it sounds like it'll probably run for the rest of the year, at least just given the ongoing dislocations. But is it part of your broader strategy to sort of maintain some of the share that you've gained this year from a reliability perspective? Or what's your overall thought process with that? And I suppose the rest of the footprint?

Yeah, I think the agility that the team showed in Q2 was really strong. You know, the response on Frankfurt, you know, that plant had been down for more than six months. We had to go through and put equipment back into service there. The team was able to get it back up and operating in about five weeks from the time at which we said go. So the agility and speed at which they were able to, once we made that decision, get the plant back up and operating and then move the supply chain around to make sure we had raw materials was a pretty Herculean effort. And I'm certainly proud of the group of how they responded. And, you know, now as we look forward, you know, Frankfurt, you know, will operate depending on where demand is at. And we will match kind of our supply needs and where the demand is on whether or not Frankfurt, you know, operates for the bouncy or not. And we haven't made that decision because I think a lot depends upon kind of where demand is at and where industry supply ends up landing here in the third and the fourth quarter. So that's kind of what we're weighing right now, Vincent. That's no different than past decisions. Frankfurt, as well as the Singapore unit, are assets that we have been block operating now for several years based upon where our needs are.

Okay. Thank you. And as a follow-up, you outlined all these sort of, I think it was 20 sub-segments within EM that you think you can push further into and that are attractive for a variety of different reasons. You know, are there any in particular that you feel like you're undershared in, where you feel like now that you maybe take a more aggressive tact, you'll see sort of a quicker success in, or is it all about the same?

I mean, Vincent, you've known us for a long time. And, you know, one of the mantras we talk a lot here at Sell and Ease is we can always do more. And I think, you know, technology and innovation is happening and is moving so rapidly right now that I think it's really irrelevant what our current share and penetration is, because that opportunity set as we go forward is changing so fast. And, you know, I'll use kind of data centers and servers and data centers as an example here. You know, we've been supplying connectors and other materials into servers for a long period of time. But when you kind of break down an AI data center server, it's very different. You know, the chip that's used in each of these servers is extremely expensive. And, you know, as you kind of, as they build these things, you know, protecting that chip to ensure that you have, you know, protection from signal loss, that you maintain the speed that's required, that you can maintain thermal management through that system, it creates, you know, three times the amount of opportunity for our materials in terms of connectors. It creates opportunities around the thermal management system, wire and cable applications. And so, you know, it's the multiplying effect of being able to leverage kind of where with some of our key customers where we've historically gone and as they're innovating, it just presents kind of, you know, new ground for us to be able to penetrate with our materials. And so that's kind of the mindset that we're that we're really driving now with our commercial teams. And we had our commercial team leaders into Dallas last month, and I got an opportunity to spend with them. And the energy that was there and the accountability that they're driving with their teams around the commitments they're making to really penetrate and drive growth for us is really exciting. And, you know, it really is a value play. And you've seen that come through in terms of the mix enrichment that has been happening now for about a year in the business. And, you know, we think we can multiply this as we go forward.

Okay. Sounds great. Thank you very much.

Thank you. Our next questions come from the line of Hassan Ahmed with Alembic Global. Please proceed with your questions.

Morning, Scott. Scott, you guys mentioned obviously the lag effect of raw material costs impacting H2. Just could you sort of expand on the lag effect of pricing benefits as well? I guess I'll ask a different way. Obviously, you guys were pretty aggressive with price hikes through the course of Q2. And I would imagine some contracts are a little longer duration. So as those contracts reset, I would expect some benefit coming from there. So maybe, you know, what percentage of your EM contracts are longer duration? and what percentage of your AC contracts are longer duration, you know, any sense around that would be great.

Yeah, I mean, the Acetil business is a business that moves in real time, Hassan, for the most part, and you don't have significant lag effects. And, you know, we saw kind of the peak of raw materials flowing through the Acetil business really in the first half of Q2. So a lot of kind of that lag effect is, I would say, kind of already occurred in the Acetil business. You know, EM, because, you know, the raws tend to sit in inventory longer, you know, we didn't really see much of that flow through in Q2, and it's really kind of coming through now in the third quarter. And so I would say the majority of that price, you know, I talked about last quarter the importance of exiting Q2 at kind of that peak price level, and I feel like we did that. And that's not to say we won't have, you know, some, you know, lingering effect of a positive price here in the quarter. But I would say the majority of it, I think we've we've achieved. But we'll continue to push there. And a lot of it depends upon, you know, where scarcity occurs and, you know, where we can where we see opportunities and where we're really well positioned. You know, we talk a lot about our global footprint, NASA teals, but, you know, our engineered materials footprint is extremely geographically diverse as well. And because of our strategy of, you know, kind of moving to where compounding is such a critical part of that business and, you know, buying more of our polymers versus making with some of the changes we've made in our footprint actions over the last couple of years, that just creates more flexibility and nimbleness for us to be able to be a reliable supplier to our customers in the EM business as well. So, you know, we'll continue to look for opportunities on price, but I would say a lot of that, you know, I think we achieved coming out of Q2.

Very helpful. And as a follow-up, I mean, you guys talked about the sort of restructuring and nylon optimization being, you know, around a $50 million annualized benefit, and then the Lenarkin side of things, another $20 to $25 million. So from a PML impact perspective, you know, when should we start seeing that benefit? I mean, will we see an element of that benefit in the back half of this year? And how does 2027 look with regards to capturing that?

Yeah, thanks, Hassan. I think the EM footprint actions, you know, think about $30 million, $35 million, and then Lanarkin 2025. We'll probably get a third or so of the Lanakin cost savings this year and roughly half of the nylon restructuring this year. And so we'll get the rest of that next year. But it really sets us up for lower cost structure in the future and certainly great for our cash flow.

Very helpful, guys. Thank you so much.

Thank you. Our next question is coming from the line of Matthew DeYeau with Bank of America. Please proceed with your questions.

Good morning, everyone. On EM growth rates, clearly a fair amount of the discussion, at least on some of the GLP-1 pens. And you put out a $500 million TAM, and I appreciate some of this TAM commentary. How do we think about the ebb and flow there with the pill, the GLP-1 pill kind of coming in? Is that kind of expected in this $500 million range? And then in autos, Skylar, you used to outgrow auto builds pretty consistently. And I know things have changed a bit with the mix and where the volumes are coming from. But, you know, can you take a step back and give us an idea of why the decel in autos is now more transferable or why you're not outgrowing as much as you used to? And if there's a path to getting back to, you know, IHS plus growth rates, what is it?

Thanks for the question, Matt. We've talked now for a while about our focus in engineering materials really being about value over volume. And I think with more polymer capacity coming on in China, our ability to be able to keep up with the pace of growth of standard grade materials, particularly in China, is going to be challenged. And so we're less focused on the volumetric piece, particularly into automotive. We're more focused on share gains, penetration, and really getting the volume and value in some of the non-auto spaces. So I think when we look at the value that we're getting in the mix enrichment, even specifically in the automotive segment, we feel really good about the penetration and the wins that we're seeing there. And that, we think, is much more important. And then we have now for the last year and a half been taking very corresponding actions around our plant footprint to ensure that we've got the right matchup of the capacity needs with where we think the business is going going forward. So I'm less worried about kind of, you know, are we outgrowing auto or not? The key is, is our revenue really outpacing? And so far, it certainly is. And then when you look at drug delivery, we're really excited about the trends that we're seeing in drug delivery, and it's bigger than just GLP-1. When you think about patient monitoring and at-home health self-administering that we're starting to see, there is a real growing trend around injectables, but also continuous glucose monitoring continuing to be an important area of growth. And so I think this is you are going to continue to see changes. And, you know, the growth rates that we called out and the size of markets does contemplate, based upon discussions with our customers, kind of GLP-1 pills and what that means going forward. So I think we've got a pretty conservative view there, to be very honest, Matt, and we're going to continue to work. And there will be other therapies and treatments that are going to be rolling out here over the next several years that will be administered at home through injectables beyond GLP-1, and we're excited about the opportunities there also.

Thank you. Our next question is coming from the line of Abigail Ebert with Wells Fargo. Please proceed with your questions.

Hi there. Thanks for taking my question. Looking at your closure in South Korea for EM and then Lanarkin and AC, are there other potential candidates to rationalization on your horizon?

You know, Abigail, I'll repeat what I said earlier. There's always more that can be done. You know, we've talked about three priority actions for us as a company. You know, increasing the free cash flow of the corporation and aggressively deleveraging the balance sheet, intensifying our cost improvements and driving productivity every day, and then driving top-line growth in these sub-segment and pockets of our end markets that are growing and have uniquely higher growth rates and matching that with our own capabilities. That second bucket doesn't ever go away. And we've done a lot of the bigger footprint actions, but there's still more that we'll look at. And a lot of depends upon kind of where, how markets develop, you know, how our position changes and, you know, where we can be successful with our kind of our whole value chain and, you know, continuing to strengthen, you know, our specialty compounding leadership that we have on a global basis is really the key priority. And where we get our polymers is going to tweak and change and making sure we're as efficient with that compounding network as possible. So there are additional opportunities. I would say they're probably smaller in nature as we go forward. They're probably more in the five to 10 million, you know, per site range. But, you know, as we as we work those, you know, we'll certainly, you know, talk more and more about it. But there are a lot more additional cost improvement things that we're working. We're finding ways that we should be more efficient right now with our supply chain, for example. Now that we've kind of made the footprint actions, you know, we're positioning for growth in a different way. You have to then reset your supply chain. And we think we can pull costs out over the next several years, not just from an inventory reduction standpoint that Chuck talked about, but also kind of hard costs, you know, from our cost to serve and still provide the reliability supply to our customers that they expect. So I think, you know, it may morph away from, you know, plant footprint changes to other kind of efficiency improvements that we have across the network going forward.

Okay. Got it. Thank you.

Thank you. Our next questions come from the line of Lawrence Alexander with Jeffries. Please proceed with your questions.

Good morning. When you look at your full year estimate, what do you think is kind of the embedded net impact of all of the costs around the divestitures, the inventory adjustments, kind of the net working capital swings and absorption that you've had to go through the downtime? Just when we're thinking about what the actual comparable base is for 2027, is it really six or is it a significant difference from that in one direction or the other?

Lawrence, let me hit some of the, you know, by business, some of the things that we're going to see, you know, this year. If you recall, so EM entered this year, you know, with the need to offset a variety of headwinds, $45 million of absorption hit from reducing inventory as part of our nylon optimization, $35 million of adjusted EBIT loss from the, you know, Micromax divestiture, which was, you know, very good for our deleveraging, you know, and about $10 million of equity earnings decline really related to the temporary disruptions that even SENA, you know, And despite that, you know, we do expect EM to grow adjusted EBIT at double digit rates, you know, think closer to 15 percent than 10. So really nice job for them offsetting that. And AC, obviously, we've talked about the team pivoting and capturing value from the supply disruptions as the most reliable supplier to drive our Western Hemisphere profitability. You know, they did also have an incremental $20 million of absorption that will hit them in the second half. So, you know, really great work from the team to drive significant earnings growth on top of that. You know, as I mentioned, I think the, you know, the working capital, you know, we entered the year with a $100 million target of inventory reduction and engineering materials. That's underway. way. It's being kind of masked right now by some of the increase in raw material prices that you see flowing through inventory. But, you know, we think that we'll have a strong year of free cash flow. We'll capture some of that benefit this year and some next year. So, you know, we enter next year also with, we've laid out the cost reductions, you know, on a slide in our presentation, you know, 80 to 100 million of cost reductions as we go into next year, which will kind of help us, you know, offset any change in the business conditions. So I hope that helps with some of the big pieces of how we think about, you know, 2026 and going forward.

Thank you.

Thank you. Our next question has come from the line of John Roberts with Mizuho. Please proceed with your question.

Hi, this is Saurabh on behalf of John Roberts. The first question I have is, do you see the Ibn Sina joint venture gradually ramping as the straight closure continues, or is it more flat-lined until there is significant reopening?

Yeah, so the plant is running again, and so there are sales now happening in the third quarter. So that will yield a higher level of dividend expected into Q4. So we definitely see a ramping up happening already. Now, obviously, there is a lot of volatility still in that part of the world, and so we'll have to continue to monitor it. But we do expect to see kind of a lift back up in Q4 versus what we have rolling through in the third quarter.

Got it. And I think the second question I have is just the technology roadmap on data centers continuously evolving. So in terms of your content, how are you in conversations with your customers in the journey?

I mean, we have sales that are happening. So it's not just conversations with customers. It's real, hardcore, intimate development work that's happening because, you know, our customers are trying to innovate. The speed at which the changes are happening and the speed at which the chips are changing is pretty dynamic. And so it requires us to stay ahead. We're doing new product development and some of our key polymers as well to stay ahead of that so that we can meet the needs of our customers and what the requirements are. The technical requirements here are hard. They're tough. And so, you know, that is giving us opportunities to be able to bring a much wider solution set to kind of these servers that are supplying into these data centers and then thinking broader about data centers in general and thinking about the cooling systems that are going into them. And then, you know, I think it's just creating a very different discussion with our heritage customers in the electronics and use spaces, but then also with some new customers that we haven't historically called on. So I think, you know, we've got, as we said, you know, 30 different sub-segments. There's a number of them that are really specifically focused on kind of this data center build-out because it is really driving strong returns from our customers. And, you know, we're able to be able to leverage that into wins that are already happening.

Thank you.

Thank you. Our next questions come from the line of Josh Spector with UBS. Please proceed with your questions.

Yeah, hi. Good morning. I wanted to ask about some of the corporate cost lines, and I guess I'll apologize in advance since I think these questions have rubbed you the wrong way in the past when I've asked about them, but when I look at SG&A and I look at the other activities lines, both of them are up about $30 million in the first half year over year. I'm sure some of that's timing and some other moving factors, but I'm curious how you'd expect that to trend into second half. Is there any give back? Does that come down? And I guess, I mean, how does this square with some of the functional cost savings you guys are laying out in your slides?

Yeah, Josh, let me talk about other activities because that is definitely running higher in 2026 than it has recently. The primary reason for that is an adjustment that we made to our compensation expense accruals, which was really due to the timing of the change of business conditions and the timing of the increased earnings forecast during the year. I would say compensation expense is higher than average this year. It was lower than average last year, which also helps explain the year over year change. So, going forward in other activities, you know, I would think about that as roughly $75 million a quarter after 26, you know, recognizing there's a number of things in there that can cause some variability, but I think this $75 million a quarter after 2026 is a good place to start.

So, maybe that's then related. So, is that the same thing that's impacting SG&A then? So, then we'd expect that to go up and then that's the right base into next year?

Yeah, that's a lot of it.

All right. Thank you.

Daryl, we'll make the next question our last one, please.

Thank you. Our final questions will come from the line of this one up with RBC Capital Markets. Please proceed with your questions.

Thanks for taking my question. I hope you guys are well. Maybe I can ask the medium-term earnings question slightly differently. So I think when you went into Q2, you were thinking about $3 for the back half of $26. it seems like maybe there was a slight outperformance in Q2 at that 245, but you're still kind of targeting $6 for the year. So, Chuck, you ran through some of the puts and takes on a one-time front, but also as you look into Q2, obviously there's normalization on methanol and some other drivers. So when you put all that together, it seems like 27, you know, could maybe be in a similar range of $6? Or do you see the one-time add backs and maybe some of the other cost reductions more than offsetting the methanol and other kind of price upside that you saw this year?

Arun, I think the objective is we've taken action for 80 to 100 million of cost reductions for next year, right? The objective is to offset any changes in further moderation and business conditions for next year. You know, we've got a lot to do. You know, we'll know a little bit more later in the year, but with these actions we've taken 80 to 100, you know, we'll continue to look for more and continue also to drive growth in engineering materials, right? So, you know, we haven't talked about 2027 yet, but certainly we're taking actions to drive that as high as we can going forward.

And just on that note, as a follow-up, would you be aggressively taking – or would you be taking actions to, you know, accomplish even more aggressive deleveraging if business conditions, you know, continue to moderate? And would you like – you know, would you – is the objective to be below or, you know, three times or eventually, or, you know, maybe how does that kind of relate to the dual leveraging plan? Thanks.

Yeah, Loren, let me start and I'll turn it over to Chuck to talk about long-term deleveraging. The three priorities I talked about earlier are going to continue to be our focus areas. Increase cash flow, drive as much cash flow as we possibly can. I think what we've proven out over the last year as well as so far this year and what Chuck talked about on kind of a baseline that we're going to build off of $700 million to $800 million of cash flow going forward, we feel like our ability to generate cash here at Selene's is strong. And we can build on that and grow it. And that's going to come from continuing to drive aggressive cost reduction activities, productivity every single day. And then the last is really kind of adding this top line growth piece and the focus really around the value opportunities in engineered materials. We haven't talked on the call really about the opportunities in acetyls, but in our emulsions and redistributable powders business, there are some applications, albeit small, but they're starting to really grow where we have unique chemistry advantages in areas like tile adhesive, insulation systems, some of the evolving waterproofing technologies that we're seeing, The chemistries that we have are providing unique solutions to our customers there, and we're spending a lot of time and effort on really trying to expand these and make sure that we're well-positioned to really help kind of drive some of that growth going forward that's going to be unique to selling these. So I think what that does is it yields more and more cash every single year to deleverage the balance sheet and give us more flexibility going forward.

Yeah, that's right. I'm at the aggressive actions of what Scott's talked about, you know, driving free cash flow, executing smart divestitures. You know, I would point you to what we've laid out in terms of our net debt. You know, we're going to finish this year around $10 billion. Next year, we're really good about finishing at $9 billion, right? So making very good progress. And then, you know, the other side of the equation is EBITDA. If we can drive EBITDA growth, that will even speed that further. You know, we still think about the long-term leverage for this balance sheet around three times net debt dividend. You know, we're going to cross five this year, and the next threshold is we're shooting for is to get to four, right? So as we drive to that long-term leverage target, you know, that's our focus area, you know, and driving our own free cash flow and executing these smart investitures.

Thanks.

Well, thank you, and we'd like to thank everyone for listening in today. As always, we're available after the call for any follow-up questions. Darrell, please go ahead and close out the call.

Ladies and gentlemen, thank you so much. This does conclude today's teleconference. We appreciate your participation. You may disconnect your lines at this time. Enjoy the rest of your day.