Welcome to the Kaiser Aluminum Second Quarter 2022 Earnings Conference Call. My name is Darryl, and I will be your operator for today's call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session. I will now turn the call over to Melinda Ellsworth. Melinda, you may begin.

Thank you. Good afternoon, everyone, and welcome to Kaiser Aluminum's second quarter and first half 2022 earnings conference call. If you have not seen a copy of our earnings release, please visit the Investor Relations page on our website at kaiseraluminum.com. We have also posted a PDF version of the slide presentation for this call. Joining me on the call today are President and Chief Executive Officer, Keith Harvey; Executive Vice President and Chief Financial Officer, Neal West; and Vice President and Chief Accounting Officer, Jennifer Huey. Before we begin, I'd like to refer you to the first three slides of our presentation and remind you that the statements made by management and the information contained in this presentation that constitute forward-looking statements are based on management's current expectations. For a summary of specific Risk Factors that could cause results to differ materially from those expressed in the forward-looking statements, please refer to the company's earnings release and reports filed with the Securities and Exchange Commission, including the company's Annual Report on Form 10-K for the full-year ended December 31, 2021. The company undertakes no duty to update any forward-looking statements to conform the statement to actual results or changes in the company's expectations. In addition, we have included non-GAAP financial information in our discussion. Reconciliations to the most comparable GAAP financial measures are included in the earnings release and in the Appendix of the presentation. Reconciliations of certain forward-looking non-GAAP financial measures to comparable GAAP financial measures are not provided because certain items required for such reconciliations are outside of our control and/or cannot be reasonably predicted or provided without unreasonable effort. Any references in our discussion today to EBITDA means adjusted EBITDA, which excludes non-run rate items for which we've provided reconciliations in the Appendix. At the conclusion of the company's presentation, we will open the call for questions. I would now like to turn the call over to Keith Harvey. Keith?

Thanks, Melinda. And thank you all for joining us for a review of our second quarter 2022 results. Our businesses delivered $41 million of EBITDA in the second quarter, in what turned out to be a very challenging quarter, due mainly to ongoing supply chain issues in our Warrick rolling mill, which supplies sheet for beverage and food packaging in the North American markets. For the last few quarters, we've been communicating how the performance of our main supplier of magnesium, US Magnesium, and the Alcoa Warrick Smelter, which supplies a portion of our metal requirements, have struggled to provide us with contracted, consistent, and conforming supply of material and have negatively impacted our results. While we have worked diligently over the last several months to minimize the impact on our business and our customers, both issues worsened when US Magnesium abruptly stopped all shipments and the smelter's performance deteriorated substantially in June. These worsening conditions have continued to negatively impact our ability to run low-cost, efficient operations at the Warrick Rolling Mill. In addition to a lengthy period of unacceptable performance by both suppliers, US Magnesium's abrupt and unexpected change forced us to declare force majeure on shipments of sheet products from the Warrick Rolling Mill for our packaging customers in early July. These two supply issues combined have been a drag on earnings of approximately $20 million through the first half of the year. Allow me to provide more detail on these supply issues and what actions we have taken and are taking to put these issues behind us. Regarding our supply of magnesium and the events which led to our declaration of force majeure at Warrick on July 7, as we previously stated, US Magnesium declared force majeure over nine months ago in September of 2021. During this period, we have received little to no communication on either the cause of the disruption or plans and timelines to share their issues and return to normal operations. In the last nine months, we have received approximately 50% of our expected contracted volumes until mid-June when US Magnesium unexpectedly ceased all shipments to us. Since US Magnesium's force majeure declaration, we have been establishing and qualifying a number of new suppliers to minimize our reliance on US Magnesium and make up more than the projected shortfalls in US Magnesium's deliveries based on their projected allocations. With no pre-warning at all to the cessation of all shipments of magnesium, we were unable to replace the remaining balance of US Magnesium's reduced supply to the Warrick operation on such short notice. In the announcement to our customers, we stated we expect shipments in the month of July to be impacted as much as 30% to 40% and as much as 50% for the balance of the third quarter, in each case based on contracted deliveries of magnesium at the time, assuming no further deliveries from US Magnesium. We're in daily communication with our customers on our efforts to establish new magnesium supplies and contain this issue to third quarter shipments. The situation has improved over the last two weeks as US Magnesium has provided additional material and we continue to identify and qualify additional supplies. We now believe shipments will be higher than the levels in our previous announcement based on the progress we've made, and we expect to return to full production sooner than previously anticipated. As we previously discussed, we initiated litigation against US Magnesium in April of this year in connection with US Magnesium's force majeure declaration. Now moving to the supply and performance issues about Alcoa smelter on the Warrick site. We receive approximately 30% of our metal supply for the Warrick rolling mill from the Alcoa smelter, mainly in the form of molten aluminum when the smelter is operating effectively. While the smelter's performance has negatively impacted the efficiency and financial performance of the rolling mill for several quarters now, the smelter's performance degraded further in the second quarter, resulting in the curtailment of one of the three operating lines due to reported operational challenges. Furthermore, replacement ingots meant to make up the shortfall in conforming molten metal deliveries were not delivered on a timely basis, further impacting our operations. While we will continue to work with Alcoa to attempt to work through the operational challenges at the smelter and mitigate the impact of those challenges on the Warrick rolling mill, we are in the process of qualifying other hot metal sources for the Warrick rolling mill to ensure we will have alternative sources of supply. The Warrick rolling mill has run successfully in the past without metal from the smelter. Going forward, we are preparing for the mill to run without this smelter as part of our plans to meet long-term financial and sustainability objectives and lower the carbon footprint of the rolling mill. With the intent to continue strengthening and diversifying the Warrick supply chain and meet the objectives we've set for our packaging business, there are a number of initiatives underway at the Warrick plant that will ultimately reduce our need for third-party magnesium and hot or cold prime metal sourcing. The Warrick plant has one of the largest and most sophisticated cast houses in the world, and we have plans to further improve its ability to utilize more scrap and rely less on current metal sources. Last week, we initiated the startup of our new coated scrap metal that will enable us to process in excess of 100 million pounds of painted and bare low-cost scrap annually. We are also developing and currently testing new alloys with significantly lower magnesium content and enhanced recyclability characteristics to meet our and our customers’ needs for more highly sustainable products. Commercially, all new negotiated contracts for beverage and food can sheet have increased closed-loop return scrap provisions, thereby providing our business with a greater supply of low-cost scrap. These changes are impactful and provide insight into just a few of the areas we've already acted to strengthen this business. Again, these issues have mainly impacted operations at our Warrick Rolling Mill. All other operations have had no impact from the US Magnesium or Alcoa Smelter issues. Looking forward now on our market outlook for the remainder of the year. We anticipate continued strong demand in all markets with the exception of automotive, where despite continued tepid shipments due to supply chain shortages, we have been successful in improving prices. We delivered another solid quarter on improving aerospace shipments, with continued strengthening demand in defense, commercial, and business jets expected for the remainder of the year, and we have declarations reflecting continued improvement in these applications moving into 2023. Our general engineering business remains strong with continued solid demand in semiconductor and other various applications for plate and extrusions along with improved pricing. Packaging demand remains exceptionally strong. As noted in the last quarter's earnings call, we have begun a long-planned multi-week outage at our Trentwood facility to refurbish our heavy gauge stretcher there. In addition, the new roll coat line investment at Warrick continues to move forward with startup and qualifications scheduled for the second half of 2023, with full production slated for early 2024.

Thanks, Keith. Good afternoon, everyone. Turning to slide 8, value-added revenue of $376 million for the second quarter of 2022 increased $58 million or 18% on relatively flat shipments as compared to the second quarter of 2021, primarily reflecting improved pricing to mitigate inflationary costs. Value-added revenue for the first half of 2022 of $747 million increased $257 million or 53%, with a 42% increase in shipments driven by the inclusion of a full six months of packaging application as compared to the first half of 2021, in addition to higher value-added revenue on our aerospace and high-strength and general engineering applications, which I will cover in the following slides. Moving to slide 9, aerospace high-strength value-added revenue of $97 million for the second quarter of 2022 increased $17 million or 21% on an 18% increase in shipments compared to the prior-year period, reflecting improved pricing and continuing improvements in underlying commercial aerospace shipments and steady strengthening in defense and business jets. Aerospace high-strength value-added revenue for the first half of 2022 of $192 million improved $41 million or 27%, on a 22% increase in shipments compared to the first half of 2021. Compared to the second half of 2021, first half 2022 value-added revenue was up $28 million or 17%, on an 11% increase in shipments. The increase in value-added revenue and shipments reflects continued strength and demand for our defense and business jet applications and improving demand for commercial aerospace as we continue to see the recovery in air travel and higher shipments of new commercial aircrafts from both major airframe producers. Moving to slide 10, second quarter 2022 packaging value-added revenue was $154 million, up $22 million or 17% on 3% lower shipments from the prior-year period, reflecting improved contract pricing and increased surcharges to offset higher inflationary and commodity costs. For the first half of 2022, total packaging value-added revenue was $300 million on 355 million pounds of shipments, up from the first half of 2021. Value-added revenue of $132 million reflected a full six months of packaging revenue and shipments following our acquisition under Warrick Rolling Mill on March 31, 2021. Compared to the second half of 2021, value-added revenue improved 17% or $42 million on relatively flat shipments, reflecting improved pricing and increased surcharges to offset inflationary and commodity costs. Turning to slide 11, general engineering second quarter 2022 value-added revenue of $96 million increased $19 million or 25%, on relatively flat shipments compared to the second quarter of 2021, reflecting continued strong demand for our GE applications, higher prices, and alloy recovery to offset inflationary and commodity costs. General engineering value-added revenue of $198 million in the first half of 2022 increased $50 million or 33% on an 11% increase in shipments compared to the first half of 2021. Compared to the second half of 2021, value-added revenue also improved 34% on a 14% increase in shipments. The increase in value-added revenue and shipments continue to reflect strong underlying semiconductor plate and industrial machine tool demand, in addition to the improved pricing and alloy recovery. Moving to slide 12. Automotive value-added revenue for the second quarter 2022 was $26 million, relatively flat as compared to the prior period, with little change in shipments, reflecting the continuing impact of ongoing semiconductor chip shortages and other supply chain disruptions in the automotive industry. Automotive value-added revenue for the first half of 2022 of $50 million was down $3 million or 5% on a 7% reduction in shipments compared to the first half of 2021. Compared to the second half of 2021, auto value-added revenue was up $6 million or 13% on a 9% increase in shipments, reflecting improvement in pricing and a slight improvement in demand. Additional detail in value-added revenue and shipments by end market applications can be found in the Appendix of this presentation. Turning to slide 13, adjusted EBITDA for the second quarter 2022 was $41 million, down $18 million or 30% compared to the prior period quarter. The second quarter 2022 was primarily impacted by $17 million of incremental costs related to supply chain issues as discussed by Keith, in addition to higher major maintenance, manufacturing, energy, and employee-related costs. Our Warrick operations were materially impacted due to lack of consistent top metal delivery and quality related to the Alcoa Warrick smelter operational performance, in addition to the higher alloy energy and freight cost, which were partially offset by improved pricing and commodity and freight surcharges. Adjusted EBITDA for the first half of 2022 was $96 million, which was equivalent to the first half of 2021. The first half of 2022 EBITDA was impacted by approximately $30 million of incremental costs, including approximately $20 million driven by the Alcoa smelter operational performance and US Magnesium supply chain disruptions at our Warrick operations, $6 million higher than normal international freight cost out of our Trentwood operations as discussed in the first quarter 2022 results, and additional inflation-driven higher energy, manufacturing, and employee-related costs that were not fully recovered and timely through pricing actions. Moving on to slide 14. Reported operating loss for the second quarter 2022 was $2 million, adjusting for approximately $16 million of non-run rate items, adjusted operating income was $14 million, down from the $33 million in a prior year quarter, primarily reflecting the changes in EBITDA as previously discussed and an additional $1 million of depreciation and amortization expense. Reported operating income for the first half of 2022 was $23 million, adjusting for non-run rate items adjusted operating income was $42 million, reflecting $15 million of additional depreciation and amortization as compared to the first half of 2021, primarily related to the Warrick acquisition made on March 31, 2021. Compared to the second half of 2021, adjusted operating income was down $3 million, reflecting $2 million of additional depreciation, in addition to the changes in EBITDA as previously discussed. Reported net loss for the second quarter 2022 was $14 million compared to a $22 million loss in the prior year quarter. Adjusting for non-run rate items, the adjusted net loss for the second quarter of 2022 was $1 million, compared to the prior year quarter adjusted net income of $16 million. As a reminder, the second quarter 2021 reported net loss reflected a $36 million charge related to the refinancing of our $350 million 6.5% senior notes that were due in 2025, with our $550 million 4.5% senior notes due in 2031. As reported, loss per diluted share was $0.87 in the second quarter of 2022 compared to a loss of $1.42 in the prior year quarter. Adjusted loss per diluted share was $0.03 for the second quarter of 2022, compared to an adjusted earnings per diluted share of $1 in the second quarter of 2021. As reported, loss per diluted share was $0.36 and $1.13 for the first half of 2022 and 2021 respectively. Adjusted reported earnings per diluted share were $0.63 and $1.64 for the first half of 2022 and 2021 respectively. Our effective tax rate for the second quarter of 2022 was 23%. For the full year and long term, we continue to believe our effective tax rate will be in the mid-20% range under the current tax regulations. We anticipate our cash taxes paid will be approximately $6 million in 2022 and the cash tax rate will remain below the statutory tax rate until we fully utilize our federal NOLs of $187 million as of year-end 2021. Now moving to slide 15, as of June 30, we had $235 million of cash and cash equivalents. Total availability under our recently amended $575 million revolving credit facility, which expires in 2027, was $551 million, providing total liquidity of $787 million. There were no borrowings under the revolving credit facility during the quarter, and the facility remains undrawn. With the recent easing of aluminum prices compared to the first quarter of 2022, we do not expect any cash requirements for working capital funding during the second half of the year. Our senior notes are fixed at an annual interest cost of $48 million, and we have no debt maturing until 2028. Capital expenditures for the first half of 2022 were $46 million. For the full year, we expect our capital expenditures to be between $180 million and $200 million, predominantly related to the previously announced additional roll coater for our packaging operations. And finally, we continue to remain confident in our long-term strategy and continuing ability to generate solid long-term returns. On July 14, we announced that our board of directors declared a quarterly dividend of $0.77 per common share, reflecting a $13 million quarterly return to shareholders. We have consistently paid quarterly dividends since 2007 and we have steadily increased each annual payment over the past 11 years.

And now I'll turn the call back over to Keith to discuss our business outlook. Thanks, Neal. Turning to slide 17. While the integration and establishment of the Warrick Rolling Mill into a standalone business within Kaiser has had its challenges, we remain excited about the long-term profitable growth opportunities in packaging and the other markets we serve. The Warrick facility and the organization has a proven history of being a market leader and important supplier to the packaging industry. We are well along in executing our strategy to further strengthen that position. We are making a number of investments to support our strategy there and we have been successful in securing long-term agreements with our customers. The market outlook remains very strong, and we are well-positioned. We are confident we will achieve operational excellence at Warrick as we have achieved in our other businesses. As discussed earlier, we are taking a number of actions to address the current supply chain issues moving forward. The aerospace and high-strength markets have continued to steadily improve since the low watermark experienced in the second half of 2020. Demand for our products in defense and business jet have remained strong, and we are experiencing improving demand in the commercial aerospace sector. Declarations of shipments for all aerospace and high-strength products for 2023 are the highest since 2019. We expect strong demand to continue as Airframer supply chain issues and regulatory hurdles are resolved. We remain on track to return to record levels experienced in 2019 in the 2023/2024 timeframe. The general industrial markets have been quite robust. Recent market data shows inventory levels at service centers slightly elevated over recent previous periods, suggesting supply is catching up to the strong demand we've been experiencing. Pricing and lead times for these products have risen to record levels with strong demand, especially in semiconductor applications continuing. We expect strong demand through the balance of the year for these applications. Not much change is expected in automotive demand in the second half of the year from the first half. Periodic shutdowns at multiple assembly plants continue on relatively short notice, many times based on shortages of chips, but we understand other supply shortages have also impacted our customers. We remain in a strong position to grow once these issues with our customers begin to abate. While concerns of a pending slowdown in the general economy have been widely discussed, at present, demand in our markets remains strong. We are prepared to quickly adjust for any downturn in our markets with plans in place to adjust our businesses as necessary. We continue to maintain a strong balance sheet with significant liquidity, and we have the playbook to quickly adjust costs and spending as conditions dictate. Our focus now is addressing Warrick supply chain issues, mitigate the impact of these events on our customers and achieve the level of performance expected in our operations there. The expected outlook for EBITDA margins of 17% to 20% for the year will not be achieved due to the many supply chain issues we've encountered in the first half of the year. However, as these issues are resolved, the business is positioned to perform at these levels and better as we continue executing on our strategies, fix our supply issues and perform for our customers. As previously stated, we remain confident our portfolio of businesses is positioned to deliver approximately $2 billion in value-added revenue with EBITDA margins in the mid-to-high 20 percentage points, once the strategies, normal operations, and planned investments are in place. I'll now open the call for any questions you may have. Darrell?

And our first question comes from Emily Chieng. Go ahead, Emily.

Good afternoon, Keith and Neal. And thank you for the update today. My first question, as you can imagine, is just around the US Magnesium announcement there. Given you are seeing some progress in terms of qualifying some new supply and you may have received some additional ad hoc supply from US Magnesium recently. Could you provide some sort of glide path as to when you might anticipate the return to full production at Warrick? Is that a 4Q event or could that be early 2023 at this point?

Well, good afternoon, Emily, and thanks for that question. In our 8-K when we announced the force majeure, we felt at that time, and we were looking at all of our suppliers through the balance of the year. We felt that the numbers that we provided, the 30% to 40% at risk in July, are pretty much on track for that amount of shipment impact for July. We felt we could go down as low as 50% for supply for the balance of the quarter. We've had a tremendous amount of activity, as you might imagine over the last two-and-a-half weeks in really moving forward, fast-tracking qualifications and looking at several other sources. Our focus going forward has been to look at what that supply base would be for the balance of the year without expectations of any more shipments from US Magnesium. Based on the activity that we've done in the qualification process and this hard work that's been going on at Warrick, we now feel that we can contain that possibly to the third quarter and could return to full shipment sometime in the quarter before the end of the quarter. It's fluid right now; we have a number of qualifications underway, but the conditions have improved, and we think we will limit it to the third quarter. Not only that, we are negotiating for full 2023 supply.

Right. Understood. That's really good to hear then. And perhaps a similar question, but around the metal supply that was lost from the plotline closure at Alcoa. How easy has it been to replace those lost volumes there because you've also seen other curtailments of domestic metal as well?

Well, Emily, our arrangement with Alcoa is that they are currently unable to provide hot metal sources to us, so from their other locations we receive cold prime metal. So other than the timing of receiving that metal, with the hot metal becoming reduced, they've been able to secure our needs, with the use of cold prime and our use of additional scrap. As I mentioned in my prepared remarks, we are a little gun-shy at this point. We're not going to wait for just that issue to cure itself or to possibly improve. We are actively qualifying other hot metal sources that we will utilize going forward. We have a number of initiatives underway like the coated scrap metal that I referred to in my prepared remarks to really make ourselves less dependent on any of the prime metal sourcing and move this business more to longer-term sustainable use of scrap as its primary metal source.

Understood. And maybe final question, if I could squeeze one in? Have you been able to share perhaps what percentage of your magnesium requirements at Warrick previously came from US Magnesium? And, clearly, you're shifting away from that with your upcoming qualifications, but perhaps where would you like to be on a normalized basis once this is all resolved?

Sure. When we purchased the facility, Emily, the agreements with US Magnesium were already established. They were a significant, I'll leave it at that, but they were a significant supplier of magnesium to the Warrick facility. And another issue around the Warrick Rolling Mill is that we utilize a lot more magnesium because of the applications that we serve. So by supplying a significant amount of food cans and other products, which require a higher use of magnesium, we have a fairly large requirement there for that facility. However, I will say due to the issues that we've had and the success we've had in securing other sources, we're not putting them in any strategic level of supply for that facility moving forward. So we feel confident we're going to be able to find other supplies, more reliable, and diversified supply so that we're not faced with that by one individual supplier moving forward. I would say that comment also reflects our position on metal sourcing as well.

And our next question comes from Josh Sullivan from The Benchmark Company. Go ahead, Josh.

In the past, you mentioned when Warrick has run without hot metal, what's the cost differential to use cold metal as a source?

We have the capability to utilize cold metal effectively at our Warrick facility compared to hot metal. The previous reliance on hot metal was due to the full integration of the business under Alcoa, which made it logical to use molten aluminum from the smelter. During a brief shutdown of the smelter, the facility managed to obtain the necessary hot metal and also sourced magnesium from scrap. This transition had no significant impact on operations. Looking ahead, we aim to lower our metal sourcing costs by focusing on the lowest-cost scrap and maximizing the use of materials generated from coated scrap and other resources. We anticipate significant improvements in our operating costs as we move away from hot metal sourcing.

Got it. And what are your thoughts on some of the recent industry capacity announcements for new rolling mills? Just how do you think those are going to enter the market?

This announcement is surprising as it marks action on the Brady initiative. While there have been other announcements, they do not significantly affect our strategies for this business. We believe we acquired this business at an excellent price compared to starting from scratch, which involves building and qualifying a green site. The Warrick rolling mill has five decades of experience supplying products, making it a reputable quality provider with minimal risk from our customers' standpoint. Others have noted that new mills will be multipurpose, but Kaiser’s past experience with that in the 1990s was not very successful. We will focus Warrick solely on the packaging markets and will not redirect capacity to automotive sheet or common alloy, avoiding competition with these new mills. Our approach is to concentrate on a niche market, supported by our investments in a new coating line. This strategy will uniquely position us as we have long-term agreements established. We aim to advance our strategy further before any of the new mills begin operations. We are pleased with our investment in the rolling mill and value its reputation as a market-proven supplier.

Got it. A lot of both new and existing players are increasingly focusing on using more scrap. How do you see the recycling market for aluminum evolving? Do you think the traditional recycling systems will change as Warrick and others require more?

I think absolutely the availability of scrap is going to continue to rise. We fully know that to utilize scrap moving forward is not just about securing that on the open markets ourselves, but in coordination with our customers who are also very focused on sustainability and lowering the cost of the material. There are strong positions in place and additional scrap capacity will be generated that we should all have an availability. We are fast at work securing all of our metal needs, which include scrap. I think that's going to be a strategic position for any of the businesses moving forward. We're thinking that way. Not only will that also support what we need from sustainability, but it's really how we're going to drive additional profits and financial returns in these businesses. I believe we are all focused on the same thing, Josh; it's just making sure we have a strong strategic position in place to support the business going forward.

Got it. Yes. And then just one last one, just to put the lawsuit against US Magnesium, any key dates you can provide? And then, what damages are you pursuing? Is it quantifiable at this point?

Yes. Right now, the outlook is for the trial to begin early in 2023. When we filed the lawsuit in April, in the filings, we listed that roughly there had been $10 million, but that's a running total. There have certainly been additional costs in the second quarter with their performance and inability to meet their contractual obligations. Therefore, that keeps running up. It is still to be determined whether or not additional costs will be rolled into even further on that litigation. We believe we have a strong case. We're well-prepared. Unlike how we've been treated with how US Magnesium dealt with its obligation during the force majeure, we're communicating with our customers on a daily basis, and we are absolutely focused on returning to full production very soon to minimize any impact, short-term or long-term, to any of our customers. We take all of these matters very seriously, and we intend to pursue them with great earnest.

And our next question comes from Michael Glick from JP Morgan. Go ahead. Michael.

Hey, guys. Just one question for me. How should we think about margin progression in the second half of the year?

Michael, you broke up on us. We didn't get that. Can you repeat the question?

We understand it was about margins on something.

It looks like he's dropped off.

Okay.

Okay, and we don't have any more questions in the queue. Oh wait. We've got one more from Emily Chieng. Go ahead, Emily.

Hi, Keith and Neal, again. Maybe just a follow-up on that prior question I think it was around margin progression for the remainder of the year?

Yes. The third quarter, we know will be impacted by not only partial production from the packaging side of the business. So we really don't have an outlook right now for what that may be. However, we do anticipate moving into the fourth quarter with production back to full levels. We also have planned outages at our Trentwood facility. We expect to be able to return back to those margins I hope for, for the full year by the fourth quarter of this year. The third quarter is a to-be-determined based on how fast we can return to full production.

Understood. And maybe just a follow-on topic of costs that I think, you know, energy, labor, and manufacturing costs continue to be elevated during the second quarter. But any sort of line of sight to perhaps labor or manufacturing easing or what sort of the path ahead for those pieces?

I feel that we are in a strong position regarding our product pricing. In each category, we have successfully managed to pass through costs effectively. We have mitigated most of those costs, though a few have not yet affected us due to delays in adjustments. We expect some of these costs to be addressed soon, as we have established a quicker process to communicate these changes to our customers, especially concerning packaging. While there is a delay in finalizing those costs, we believe we have managed to cover most of our expenses. Once we resolve the supply chain challenges, we anticipate that some efficiencies will allow us to reduce certain costs. Although labor costs are somewhat higher, we think we have balanced those expenses. Consequently, I believe our situation will improve as we approach the fourth quarter.

We have no more questions at this time. I'll turn it back to the speakers for any closing comments.

Okay. Well, thank you for joining us today. We look forward to updating you on our third quarter results later in the year. All right. Thank you. Bye-bye.

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