Greetings. Thank you for standing by. Welcome to the Stepan Company Q4 full-year 2021 Earnings Call. During the presentation, all participants will be in a listen-only mode. Afterwards, we'll have a question-and-answer session. As a reminder, this conference is being recorded Thursday, February 17th, 2022. And now I would like to turn the conference over to Luis Rojo, Vice President and Chief Financial Officer. Please go ahead.

Good morning. And thank you for joining Stepan Company's fourth-quarter and full-year 2021 financial review. Before we begin, please note that information in this conference call contains forward-looking statements which are not historical facts. These statements involve risks and uncertainties that could cause actual results to differ materially, including but not limited to prospects for our foreign operations, global and regional economic conditions and factors detailed in our Securities and Exchange Commission filings. Whether you are joining us online or over the phone, we encourage you to review the investor slide presentation, which we have made available at www.stepan.com under the Investors section of our website. We make these slides available at approximately the same time as when the earnings release is issued, and we hope that you find the perspective helpful. Now, with that, I would like to turn the call over to Mr. Quinn Stepan, our Chairman and Chief Executive Officer.

Good morning, and thank you all for joining us today. 2021 was another difficult year for our world, our country, and our industry as COVID-19 and weather events created employee, raw material, and transportation challenges that impacted the global supply chain. At Stepan, our employees' commitment and our team's agility allowed us to mostly meet customer requirements and grow income while taking significant steps to build a better, stronger, more sustainable future. Our reported net income reached a record $138 million or $5.92 per diluted share while our adjusted net income was also a record at $143.5 million or $6.16 per diluted share. These record results were achieved despite the challenges affecting our operations. The estimated negative impact of the supply chain disruptions in our operating income for the three business segments totaled $21 million during 2021. In addition, global demand decreased for cleaning, disinfection, and personal wash products versus the pandemic peak in 2020. This impact was partially offset by higher demand within the institutional cleaning and functional product end markets. Although our base Polymer business was affected by supply chain disruptions, higher Polymer results were driven by the INVISTA acquisition. Specialty Product results were slightly ahead of those reported in 2020, but results were negatively impacted by raw material availability. Our Board of Directors declared a quarterly cash dividend on Stepan's common stock of $0.335 per share, payable on March 15, 2022. Stepan has increased its dividend for 54 consecutive years. During 2021, we returned $45 million to our shareholders via dividends and share buybacks. This represents an increase of 11% versus 2020. As previously communicated, our Board of Directors authorized another $150 million of share repurchases. We remain confident in the strength and diversity of our business and its ability to generate cash that will allow us to invest in our current business, pursue strategic M&A opportunities, and return cash to our shareholders. At this point, I would like Luis to walk through a few more details about our fourth-quarter and full-year results.

Thank you, Quinn. My comments will generally follow the slide presentation. Let's just start with slide 5 to recap the quarter. Adjusted net income for the fourth quarter of 2021 was $22.5 million or $0.97 per diluted share, a 32% decrease versus $33.1 million or $1.42 per diluted share in the fourth quarter of 2020. Because adjusted net income is a non-GAAP measure, we provide full reconciliations to the comparable GAAP measures and this can be found in Appendix 2 of the presentation and Table 2 of the press release. Specifically, adjustment to reported net income this quarter excludes deferred compensation expense of $2.4 million. Additionally, it also excludes $3.1 million for business restructuring, the non-cash loss on the sale of a corporate building, and environmental remediation reserves. The deferred compensation numbers would present the net expense related to the company's deferred compensation plan as well as cash settled stock appreciation rights for our employees. Because these liabilities change with the movement in the stock price, we exclude these items from our operational discussion. Slide 6 shows the total company earnings bridge for the fourth quarter compared to last year's fourth quarter and breaks down the decrease in adjusted net income. Because this is net income, the figures noted here are on an after-tax basis. We will cover each segment in more detail, but to summarize, Surfactants and Polymer are down mainly driven by the one-time benefits recorded in Q4, 2020 and specifically, the Millsdale insurance payment and the Chinese government reimbursement. Excluding those two items, our results are basically flat versus last year. Corporate expenses and all others were lower during the quarter due to lower acquisition-related expenses and incentive-based compensation expenses. The Company effective tax rate was 20% in 2021 compared to 25% in 2020. This year-over-year decrease was primarily attributable to favorable one-time tax benefits. Slide 7 focuses on the Surfactant segment we sold for the quarter. Surfactant net sales were $420 million, a 17% increase versus the prior year. Selling prices increased 27% primarily due to the pass-through of higher raw material costs, as well as improved product and customer mix. Volume was down 9% versus last year. Most of this decrease reflects lower volumes sold into the North American consumer product end market, as demand for cleaning, disinfection, and personal wash products dropped from the peak of the pandemic. This was partially offset by very strong growth in our functional product end markets, and solid growth in the industrial and institutional cleaning market. The effect of foreign currency translation positively impacted sales by 1%. Surfactant operating income for the quarter decreased $10.9 million primarily due to inflation, supply chain disruptions, higher planning maintenance expenses, as well as the one-time Millsdale insurance payment of $3 million recognized in the fourth quarter of 2020. We estimate that supply chain disruption had a negative impact on operating income of approximately $3 million during the quarter. We implemented additional price increases to continue recovering our margins. Europe results were mainly flat from the prior year due to decreased consumer product demand, which was partially offset by increased demand in functional products. Latin America operating results were slightly up from last year due to strong volume growth in the functional product end markets. Now, turning to Polymers on Slide 8. Net sales were $174 million, up 49% from the prior year. Selling prices increased 39% primarily due to the pass-through of higher raw material costs. Volume grew 12% in the quarter driven by 13% growth in global rigid polyol. This volume growth is mostly related to the INVISTA acquisition. Higher demand within the specialty polyol business also contributed to the volume growth. Polymer operating income decreased $10 million. This decrease primarily reflects supply chain disruptions and the non-recurrence of two fourth quarter 2020 events. First, a $10 million insurance recovery related to the 2020 Millsdale event and second, a $1.4 million settlement received from the Chinese government. We estimate the supply chain disruption had a negative impact on operating income of approximately $3 million during the quarter. Europe results increased driven by the INVISTA acquisition. Turning to Slide 9, despite facing significant challenges over the year, including the global pandemic and unexpected supply chain issues, we achieved record results for the full year. Our adjusted net income was a record $143.5 million or $6.16 per diluted share, which is a 9% increase from $132 million or $5.68 per diluted share in the previous year. The Surfactant segment generated operating income of $166 million, slightly lower than in 2020. Global volume decreased by 5% due to reduced demand for cleaning, disinfection, and personal wash products compared to the peak during the pandemic in 2020. This decline was somewhat offset by increased demand for products aimed at institutional cleaning and functional product markets. The Polymer segment reported $74 million in operating income, up 8% from last year. Lower Polymer volume increased by 29% due to the acquisition of INVISTA polyol. Operating income from Specialty Products was $14.2 million, remaining roughly unchanged from the previous year. Additionally, supply chain disruptions had an estimated negative impact of $21 million on our operating income in 2021, reflecting a $12 million impact in Polymers, $8 million in Specialty Products, and $1 million in Specialty Products. Slide 10 illustrates the total company earnings bridge for the full year of 2021 compared to 2020 and presents the breakdown of the increase in Adjusted Net Income. As this pertains to net income, the figures provided here are after-tax. The factor decreased slightly but was fully offset by contributions from Polymers and a one-time tax benefit. We anticipate the effective tax rate for 2022 will range from 24% to 26%. Moving to Slide 11, our balance sheet remains strong, providing us with ample liquidity for business investments. Our leverage and interest coverage ratios are at very healthy levels. The company had capital expenditures of $195 million for the full year as we increased our investments.

Thank you, Luis. As we wrap up 2021 and despite the supply chain challenges that we experienced together with our customers, we managed to deliver record net income. Our team delivered once again. Although cleaning, disinfection, and personal wash volumes declined last year versus the 2020 pandemic peak, consumer habits have changed, which has led to a sustained higher level of demand versus pre-pandemic levels. Published data shows consumers are spending up to 20% more time in their homes. Our diversification strategy into functional products continues to be a key priority for Stepan. Our global agricultural volumes increased double digits in 2021. High commodity prices for corn and soybeans, coupled with more planted acreage in the year, drove a strong season for crop protection products in North America. In Latin America, crop prices and a favorable exchange rate had a positive impact on exports, driving higher planted acreage in Brazil. Oilfield chemicals experienced record sequential volume growth as the price of oil increased 68% last year. We remain optimistic about future opportunities in this business, as oil prices remain high and we continue to promote our new cost-effective product solutions that will improve Oilfield Operator returns on investment and protect their wells. We increased our Biocide capacity last year and are investing to increase capacity and capability in certain product lines including sulfates, amphoteric, and alkoxylates to ensure we can meet higher requirements from our customers. As discussed previously, we are increasing North American capability and capacity to produce sulfates that meet new limits on 1,4 Dioxane by the January 2023 regulatory deadline. 1,4 Dioxane is a minor byproduct generated in the manufacture of sulfate surfactants which are key cleaning and foaming ingredients used in consumer product formulations. Through a combination of process optimization and additional manufacturing equipment, Stepan will be prepared to supply customers with sulfates that meet the new regulatory requirements. This project, along with our previous investment in an Alkoxylation production facility at our Pasadena, Texas site, are the primary drivers of the forecasted $350 million to $375 million in 2022 capital spending. We expect to break ground in Pasadena next month and estimate plant start-up by the end of 2023. We are excited about the capability and the future growth that these investment projects will deliver to Stepan Company. Tier two and Tier three customers continue to be a focus of our Surfactant growth strategy. We added 1,400 new customers during 2021 and we will continue serving the strategic market for us. We continue to invest in enhancing our digital customer interface and capabilities to reach these customers around the world. We made good progress last year in our fermentation program, which is focused on the development and commercialization of Rhamnolipids. We are excited about the level of market interest in bio-based materials, including Surfactants. We expect to complete process development works this year and begin engineering design and modifications required to produce Rhamnolipids at our commercial scale fermentation plant located in Louisiana, which we acquired last year. This program is in line with our commitment to a more sustainable future. As we continue to advance sustainability initiatives, we were pleased that in 2020, the Wall Street Journal recognized Stepan Company within the top 100 most sustainably managed companies in the world. And in 2021, we were successful in improving our EcoVadis rating from silver to gold. Our consulting work at Millsdale is complete, and we are now focused on implementing the recommended changes. We accelerated investments in both expense and CapEx during 2021 to improve productivity and increase capacity. We expect to see these benefits of our efforts in the following years. Polymers had a good performance during the year despite significant supply chain disruption.

The integration of the business acquired from INVISTA was all done by our team, and we delivered more than $20 million of EBITDA in 2021. The acquisition was accretive to both EPS and EBITDA margins. We are investing at both of the legacy INVISTA production sites to increase capacity and to add capabilities to produce a broader range of Stepan's product portfolio. Given the strength of our balance sheet, we plan to continue to identify and pursue acquisition opportunities that align with our growth and diversification strategy, including the addition of new platform chemistries that can broaden our portfolio of sustainable offerings for our customers. I will now turn the call back to Quinn for closing comments.

Thank you, Scott. The company delivered record earnings in 2021. Looking ahead to 2022, we believe demand for our products will remain strong, but the company will continue to face many of the same challenges that impacted our operations in 2021. In terms of segments, we are cautiously optimistic about the consumption of cleaning disinfection and personal wash products within Surfactants. We believe volumes will not return to the pandemic peak levels of 2020; however, they will grow versus 2021. We expect industrial and institutional cleaning volumes to increase as economies open. Surfactant demand within the agricultural and oil field markets should continue to grow due to higher commodity prices and new Stepan technologies. The long-term prospects for our Polymer business remain attractive. We expect stronger demand linked to energy conservation efforts and more stringent building codes. Additionally, we believe that the new U.S. infrastructure bill should provide tailwinds for the installation industry. However, in January, we experienced production challenges in our Polymer unit at Millsdale and unfortunately, we had to declare force majeure. At Millsdale, we are producing polymers at reduced rates and we are using our global network including the acquired INVISTA, Wilmington, North Carolina site to deliver products to our customers albeit at higher cost. We expect to resume full production in early March. We anticipate our Specialty Product business results will improve slightly year-over-year. Despite continued raw material sourcing issues and higher prices, as well as our higher first-quarter polymer supply chain costs, we believe underlying market demand across most segments remains strong, and we are optimistic about delivering another good year. Finally, today we are announcing my retirement from Stepan Company effective April 25th, 2022. I'm extremely pleased that Scott will be our next CEO. No one is better suited to lead us into the future. Under his leadership, the business has diversified its market presence, delivered innovative sustainable technologies, and completed multiple acquisitions which have contributed to record results. It has been an honor and privilege to serve as a third founding family CEO of Stepan Company. I am proud not only of the value that we have created for our employees, customers, and you, our shareholders, but how we have delivered those results. I am grateful to the Stepan employees around the world whose unwavering commitment to our mission has allowed us to grow and will ensure our future success. This concludes our prepared remarks. At this time, we would like to turn the call over for questions. Scott, can you please review the instructions for the question portion of today's call.

Thank you. We do have a question from Mike Harrison with Seaport Research Partners. Please go ahead, your line is open.

Hi. Good morning, and congratulations to Scott on the promotion, and Quinn on the retirement announcement.

Thank you, Mike.

Thank you, Mike.

We're both looking forward to that.

Understood. Was wondering if you can give a little bit more color on the inflationary and supply chain disruption impacts across the different segments. A little bit what we're trying to understand, you gave the $21 million total impact from disruption in the fourth-quarter. Trying to understand how much of that is price cost lag. How much of it is maybe related to limited raw material availability, or some other production inefficiencies? Are those issues getting better, as we get into Q1 and Q2? Or could they actually worsen in the first half of the year?

Thanks, Mike, for the question. This is Luis. I'm not going to delve into all the specific details since this pertains to the overall impact of Q4 and, more importantly, the total impact for 2021. As I mentioned earlier, the supply chain disruptions we encountered due to raw material availability and logistics resulted in approximately $21 million in operating income on a pretax basis, and I provided the figures by business units. This significant impact hindered our ability to grow our business further. To give you some perspective on inflation and pricing, our cost of goods sold has increased by 31% while volume has only risen by 2%. We're experiencing substantial inflation in raw materials exceeding 30% and logistics exceeding 25%. As indicated in our numbers, we've effectively managed our pricing and mix, finishing the year with a 22% price mix, with gradual improvements each quarter: 13% in Q1, 20% in Q2, 28% in Q3, and 29% in Q4. There is typically a lag between costs and pricing, but the team has done a commendable job addressing the inflationary pressures through pricing and mix. The 22% translates to $400 million in pricing and mix. We are satisfied with our team's performance and will continue to focus on productivity, pricing, and mix to gradually enhance our margins.

If I could touch on raw material availability. Raw materials within our Surfactant business are generally significantly improved. There are still some issues with regard to propylene oxide and fatty acid availability that we're still dealing with, that this whole supply chain is facing. But the other raw materials are present. The issue that we're still facing that is problematic is transportation availability, and that has a universal issue in the United States today. And I would say there's some gradual improvement there, but it's still a big issue. In talking with our suppliers and our customers, we anticipate that that will be with us through the first half of the year.

I appreciate all the color there, Luis. So I guess I would just ask as a follow-up that you guys run on FIFO inventory. So, I guess I'm asking have we already seen peak raw materials run through to the P&L in Q4 or is Q1 going to be the peak for raw material costs?

We have a broad basket of raw materials. Some are going north. Some are trying to stabilize, but oil is already at $93, so I don't think we're in the peak yet. Now, the slope of increase has significantly changed, right? The slope of the increases that we saw in Q2, Q3, and Q4, for the average of the 30% plus in 2021, that slope is significantly lower now. But with oil above $90, I don't think we're in the peak yet.

Alright, I appreciate that. In terms of the Millsdale facility, you mentioned some disruption there and declaring force majeure. How much lower is production now, or operating rates now versus a 100% of where you’d expect to be? Can you also talk about the changes that are being recommended and implemented at that facility based on your work with consultants?

Yes. Thanks. So, we experienced a power disruption in early January that subsequently caused damage to our Polymer plant which we're in the process of getting back online. And as Quinn mentioned earlier, we're expected to be back to full production rates by March 1st. Today, we're running at about half capacity at the site but are supplementing supply from our global networks as Quinn mentioned earlier. So once we get the units back to full production rates in early March, we have a long list of items that we will be working on to get that reliability up so we can handle the power blips in the future. That work will commence in, starting in Q2. $5 to $7 million impact is what we think we'll be seeing in Q1.

In Q1 '22, the $5 to $7 million that Scott just mentioned is on a pre-tax basis.

Perfect. That's very helpful. And then a couple of quick questions. First of all, Luis, on the tax rate, your guidance is quite a bit higher than the 20% you saw in 2021, what causes the variability in the tax rate? It seems like it's jumped around the past few years.

Yeah, that's a great question, Mike. Over the past few years, especially in 2021, we've had the chance to implement some one-time tax projects. In the U.S., the average tax rate for many companies, including state taxes, is around 24% to 25%. For our international operations, the average tax rate rises to about 26%. Our typical tax rate falls between 25% and 26%. Last year, as we worked on tax projects, we completed the exit process from our acquisition in Brazil. Under Brazilian law, goodwill can be amortized for tax purposes, which gave us a significant one-time benefit in 2021. However, we aren't anticipating any similar projects for 2022. We'll keep searching for opportunities, but currently, we don't foresee any major projects that would decrease our normal tax rate of 24% to 26%.

Alright. And then I was also curious about the fourth-quarter revenue contribution from INVISTA. I know you said about $120 million in revenue for the full-year, but what did it do in Q4? And maybe give you a chance to comment on how that business is performing relative to your expectations roughly a year since you acquired it. Thank you.

Yes, we provided a $120 million figure. As you know, we had the business for 11 months in 2021. So, you can easily see that it's around $10 million per month. But you know that this business has seasonality, right? I mean, Q4 is typically the lowest quarter of the year in the seasonality. So, I'm not going to give you the exact number. You can imagine that is below $30 million, below the normal average.

I would say we're very pleased with the integration effort by our employees around the world. The volumes increased as a result of the underlying market growth, and the efficiency of which we integrated that into our supply chain network. We were able to improve the margins on the European basis, and we're very pleased with the overall contribution of the business and it's right at early start; it's ahead of our plan. The business generated an excess of $20 million of EBITDA in 2021. That put us basically ahead of our target, like 2 years, right? We promised you guys 6.5 to 7.5 multiple after 2 years, we're basically delivering that in the first year.

Alright, thanks very much.

Thanks, Mike.

Our next question is from Vincent Anderson with Stifel, please go ahead. Your line is open.

Yeah. Thanks. Can you hear me, okay?

Yes. Good morning.

Good morning. And I'll let go, Mike. Congratulations to Quinn and Scott. Both. Quinn, I'm not sure when we can expect your line of skin and hair care products as you enter the next phase of your career. But I can't imagine you're just going to walk away completely. So sorry. Maybe a bit more granularity on where destocking was most concentrated between your Tier 1 and Tier 2, Tier 3 customers. And then how that might be impacting your broader expectations for mix impact on margins and Surfactants next year or this year, I should say.

Yes. Thanks, Vincent, this is Scott. The destocking that we experienced in 2021 was really centered around biocides used in disinfection products both for home and in industrial applications. I'd say the other area was in liquid hand soap. So, I think as we've all witnessed in 2020 and 2021, the myriad of products that were available in the market and the store shelves did cause, I think, a fat spot in the supply chain which had to be worked through in 2021. I will say that impacted both Tier 1 and Tier 2, Tier 3 customers equally. Where we see ourselves in 2022, we're hopeful that most of that inventory has been flushed through the system, and that we will see more normal as demands going forward. Into Quinn's earlier point, we believe that we'll be above pre-pandemic levels, but not as high as the volumes we saw in 2020.

Okay. That’s helpful, thanks. Switching over to functional Surfactants. Just given the inherent volatility of those end markets, I was curious how you measure your performance in areas like Ag and oil field, and if there are any kind of broad targets that you'd be willing to share with us heading into 2022?

No. You hit it on the head. The winds that these markets are volatile. I'd say Oilfield obviously more volatile than Ag. You do have a good underlining trend tailwind in the crop production market with the need to feed the planet and with renewable fuels taking a larger stage going forward. There are really bullish undertones for continued demand for crop protection products. Oilfield obviously is more volatile. I think that's in terms of how we look at it in forecast going forward, it's not a science by any means. What I would say is one of the key metrics for us in terms of our R&D efforts within the Ag space. We're tracking fairly closely our wins at the customer interface in helping them formulate the next-generation pesticide products for the marketplace. Generally, there's registration lag that is two to three years after those products are fully developed. So, one of the key internal metrics that we carry out is our anticipated product launches and we do have a window in terms of how our business is going to be impacted by those launches over the next couple of years. What I would tell you is that we remain optimistic about our growth in the crop protection segment as a result of those previous R&D activities and wins.

That's great. I remember you mentioning some significant wins in the Ag business a couple of years ago. Are you indicating that you are confident we are approaching the end of that registration window as we enter 2022?

One brief moment as we reconnect. We are now reconnected. We may begin.

Sorry about that. It must be the new guy. No, we've lost connection, and we're back online. Vincent, I'm not sure exactly where we last dropped off, but I think it was as I was saying, that we believe we have some items left in our pipeline. Do you have another question?

Yes. Can you still hear me?

Yes.

Perfect. Alright. Well, yeah, that does answer the last question. And so, for the last one from me, this one's a bit more anecdotal, but I've been noticing a lot more of these consumer cleaning products that are being sold in dried form and either re-hydrated at home like surface cleaners or used directly in dry form like these laundry detergent strips. They are all over my house right now. The whole sales pitch appears to revolve around a more attractive environmental footprint by not having to ship water. Have any of these products come up on your radar yet? And if so, do they represent any meaningful change in their Surfactants requirements?

Yes. So, great question, Vincent. I would say this is obviously from a sustainability push. There is a lot of water shift around the world today, and a lot of consumer products. So, getting concentrated formulations to them and then use by the consumer is a great way for companies to have a reduction in scope three emissions around product use. Stepan, we have a product line within Surfactants, our solid Surfactants and highly concentrated Surfactant So we are working with the consumer product companies, to help their journey towards a more sustainable product portfolio on the store shelf.

So that's helpful. If I can just ask a caveat, though. We used to use powdered laundry detergent and we determined that that was not optimal for our water supply. Are we going back to the old school sulfonates in this process, or is this just a completely new product line that still facilitates dry formulations?

I think there's a balance. I don't see us going back to powdered detergents from an environmental footprint perspective. That technology and their processing is not as attractive as other new alternative processing technologies that consumer product companies have for producing highly concentrated and/or some other alternative forms of solid detergent.

Yes. So, the active ingredient in traditional powders was very low, quite frankly, and today's pods or strips that you're talking about are much more actively formulated.

Okay? Alright. Thanks very much. And again, best of luck to Quinn and Scott.

Thank you.

And we have a question from Marco Rodriguez with Stonegate Capital Markets. Please go ahead, your lines open.

Thank you for taking my question. I have a quick follow-up. Regarding the supply chain disruptions you mentioned, particularly the transportation issues, could you provide more detail on that? Is it due to difficulties in finding trucks or the high cost of trucking? Also, if I missed it, could you comment on any impacts related to labor availability?

Thanks, Marco. Regarding transportation, the largest leverage that's impacting the disruption is the availability of drivers. For these hazardous shipments, especially in the chemical industry, it's hazardous transportation. So, there is a significant driver shortage. That number's been published as being greater than 80,000 across the North American or the U.S. marketplace. The ability to close that gap is going to take longer than anyone initially anticipated. Marco, can you hear us?

Yes.

It's not an issue with equipment availability; it's a driver issue. Regarding labor, we are not affected from a labor standpoint. Our attrition rates have remained relatively low throughout the pandemic, and this has not affected our ability to produce and service our customers.

Got it. Can you provide some comments on the price increases you've implemented for your paid customers? You've mentioned before that there is typically a lag. When do you anticipate recovering the margin from the last quarter? Additionally, with raw material prices continuing to rise, how are you planning for potential price increases in the future?

Marco, this is Luis. What I would say is that the business model has pricing built into it in both situations when raw material goes up and when raw material goes down. So, we have a good track record of adjusting our prices depending on the environment. As I mentioned before, I don't think we are at the peak yet, and that will require more diligence on pricing in 2022. But we believe the slope of both raw material and pricing are going to be significantly lower than in 2021. So, we monitor these on a weekly basis, all raw material prices and adjust and talk with our customers so that we will continue doing the right thing and having the right balance between pricing and margins. We want to continue pricing and volume. So, we will continue making sure that we deliver the maximum return at the end looking at all those variables.

Understood. And then last quick question for me, I was just wondering if you can maybe provide a little bit more color on your commentary surrounding cleaning and disinfecting. You've provided guidance where your expectations that the consumer side might see some growth in this new fiscal year, but you're somewhat cautiously optimistic, and expectation is obviously the institutional cleaning side is also expected to continue to see growth. Can you maybe just talk about what is driving those expectations near level of confidence there?

I would say first and foremost, we do expect raw material availability to improve throughout the year. We believe outside of I would say biocides and liquid hand soaps and across the market in general, inventory levels are probably below where most companies would want them at this point in time. So, we think the underlying demand is there. If we can get through and see the improvement in raw material availability and can reduce some of the transportation shortages, hopefully in the second half of the year, we think that demand could be there.

Understood. Thank you, guys, very much for your time. I appreciate it.

Thank you, Marco.

And there are no further questions at this time.

Okay. Well, thank you very much for joining us on today's call. This is my last investor call. Scott is ready, the team is ready. I am confident that your Company is in good hands and that the best is yet to come for Stepan Company. Thank you and have a great day.

That concludes the call for today. We thank you for your participation.