Fuller H B (FUL) Q3 2026 earnings call

Thank you, operator. Welcome to H. B. Fuller's 3rd quarter 2026 investor conference call. Presenting today are Celeste Mastin, President and Chief Executive Officer, and John Corcoran, Executive Vice President and Chief Financial Officer. After our prepared remarks, we will have a question and answer session. Before we begin, let me remind everyone that our comments today will include references to certain non-GAP financial measures. These measures are supplemental to the results determined in accordance with GAP. We believe that these measures are useful to investors in understanding our operating performance and to compare our performance with other companies. Reconciliation of non-GAP measures to the nearest GAP measure are included in our earnings release. Unless otherwise noted, comments about revenue, refer to organic revenue, and comments about EPS, EBITDA, and profit margins refer to adjusted non-GAP measures.

We will also be making forward-looking statements during this call. These statements are based on current expectations and assumptions that are subject to risks and uncertainties. Actual results could differ materially from these expectations due to factors covered in our earnings release, comments made during this call, and the risk factors detailed in our filings with the SEC, all of which are available on our website at investors. hbfolar. com. I will now turn the call over to Celeste Mastin. Celeste?

Thank you, Scott, and welcome to today's call. Through disciplined execution, we delivered strong revenue, EBITDA, and EPS growth in the quarter, and continued to improve profitability and advanced toward our EBITDA margin target of greater than 20%. Pricing actions are offsetting higher raw material costs, and our restructuring efforts continue to enhance operating leverage. With the anticipated closing of the AMS acquisition before year-end, we remain focused on strengthening our portfolio, executing our quantum leap program, and creating long-term value for shareholders.

Turning to our consolidated results in the third quarter, revenue was up 5.2% year-on-year. Adjusting for foreign exchange and acquisitions, organic growth was 4.4%, driven by pricing of 7.4%, partially offset by lower volume year-on-year. From a profitability perspective, EBITDA of 187 million increased 9% year-on-year, and EBITDA margin expanded 80 basis points to 19.9%, with EPS up 21% versus the same period last year. The continued execution of our pricing actions drove EBITDA growth and margin expansion across all three GBUs, enabling us to successfully offset elevated raw material inflation.

Now let me move on to review the performance in each of our segments in the third quarter. HHC delivered 6% organic revenue growth year-over-year in the quarter, with strength in hygiene, beverage labeling, and tape and label more than offsetting softness in packaging.

EBITDA margins were 17.6% up 70 basis points versus last year, reflecting double digit pricing performance. EA delivered organic revenue growth of approximately 5% year-over-year, excluding solar, with continued strength in aerospace and general industries. Electronic softened in the quarter as chip shortages weighed on mobile phone production in Asia Pacific, a reversal from the strong growth we saw in the first half of the year, including solar, organic revenue, increased 1% in the quarter. We have now fully lapped the solar exit and do not anticipate a meaningful impact on EA or consolidated HB fuller organic growth going forward.

EA EBITDA margin was 23.8% up 50 basis points versus last year, driven by favorable pricing and restructuring savings. BAS delivered another strong quarter with organic revenue up 5% year-over-year, growth was driven by strength in roofing and insulating glass partially offset by softness in wood. Despite a muted construction environment, BAS delivered another quarter of consistent growth and solid execution, demonstrating the importance of the innovation the group has brought to market. EBITDA for BAS increased 8% and EBITDA margins expanded 50 basis points year-on-year, driven primarily by the impact of positive price. Geographically, America's organic revenue was up 4% year on year with positive organic growth in all three GBUs led by BAS up 9%. Positive organic growth was driven by strong performance in roofing, insulating glass, and aerospace market segments.

In EIMIA, organic revenue increased 9% year on year with positive price in all three GBUs and strong volume growth in EA markets including automotive and aerospace. Asia Pacific organic revenue was up 4% year on year excluding solar, driven by strength in HHC particularly in packaging. Total organic revenue was approximately flat year on year including solar.

Now let me provide an update on the petrochemical supply chain disruption and what we're seeing as we enter the fourth quarter and look toward 2027. The dislocation continues to be a defining feature of our operating environment. Supply chains remain disjointed and we do not expect a normalization until well after the conflict subsides. We acted quickly and decisively in response to this situation and have been successful in maintaining supply continuity for our customers and will continue to do so. On raw materials, prices have stabilized at elevated levels and we expect them to remain at or near current levels for at least the remainder of the year. As conditions warrant, we will judiciously raise price to offset raw material costs and protect our margins.

We remain confident in our ability to continue mitigating inflationary pressure. Now let me take a moment to provide an update on Project Quantum Leap, our multi-year initiative to optimize our manufacturing and distribution network, improve factory utilization and service levels and increase the efficiency of our global supply chain. We continue to make good progress and implementation is tracking as expected. The team remains focused on disciplined execution and delivering the long-term benefits we've outlined. As a reminder, we began this project with 82 manufacturing facilities at the end of 2024. We expect to exit 2026 with approximately 62 facilities and excluding AMS further reduce the footprint to below 60 by the end of 2027 while progressing to our goal of 55.

These actions are improving network efficiency while positioning us to better serve our customers with a more streamlined operating model. From a financial perspective, Quantum Leap remains a significant value creation opportunity. We continue to target approximately $75 million of annualized conversion cost savings by the end of 2030. Through the end of 2026, we expect to have realized approximately 25 million of those benefits.

Looking ahead, we expect the program to deliver an additional 20 to 25 million of incremental savings in 2027. In support of this initiative, we expect to invest $150 million of capital over the life of the program. We plan to invest roughly $50 million of capital in 2026 and anticipate capital spending of less than $25 million in 2027 as key projects are completed with a further reduction in spending expected after 2027. We anticipate approximately 50 million of total one-time cash costs associated with the program with about a third of those already realized. Importantly, total one-time costs are projected to be more than offset by proceeds from real estate sales. Beyond direct cost savings, Quantum Leap is expected to generate substantial cash flow benefits through improved working capital efficiency, inventory reduction, and lower maintenance capital requirements.

Overall, we remain on track and are even more confident today in Quantum Leap's ability to help enable meaningful earnings growth, cash flow improvement, and progress toward our long-term margin objectives.

Now let me turn the call over to John Corcoran to review our third quarter results in more detail and our updated outlook for the remainder of 2026.

Thank you, Celeste. I'll begin with some additional financial details on the third quarter. For the quarter, revenue was up 5.2% year on year. Currency and acquisitions contributed a positive 0.8%. Adjusting for those items, organic revenue was up 4.4% with pricing of 7.4% offset by lower volume. Adjusted gross profit margin was 33.5% up 120 basis points versus last year, driven by pricing execution and restructuring savings. Adjusted selling, general, and administrative expense was up 8% year over year, and down 7% sequentially from the second quarter of 2026, reflecting the timing of certain expenses.

Adjusted even up for the quarter of $187 million was up 9% versus last year as pricing execution and restructuring savings, more than offset lower volume. Adjusted earnings per share of $1.52 was up 21% versus the same quarter in 2025, driven by higher operating income. Networking capital in the third quarter of fiscal 2026 was 18.5% of annualized net revenue, up 150 basis points year over year.

The increase was primarily driven by actions taken to support quantum leap, as well as strategic inventory investments made to secure raw materials and ensure supply continuity for customers. Year-to-date cash flow from operations was $183 million, up 17% year over year, driven by higher income. At the end of the third quarter, net debt to adjusted EBITDA was slightly less than three times, down from 3.3 times at the end of the third quarter of last year.

With that, let me now turn to our guidance for the 2026 fiscal year. Please note this outlook does not reflect the impact of our proposed acquisition of advanced medical solutions. Net revenue is still expected to be up mid-single digits, and organic revenue is still expected to be up low-sickled digits versus fiscal 2025, with pricing up mid-single digits and volume down low-single digits.

Adjusted EBITDA for fiscal 2026 is now expected to be in the range of $655 million to $670 million, and adjusted EPS is now expected to be in the range of $4.70 to $4.85. Cash flow from operations, excluding AMS-related items, is still expected to be in the range of $300 to $325 million.

Now let me turn the call back over to Celeste to wrap us up.

Thank you, John. The financial performance John outlined reflects the strength of our strategy and execution. A key contributor to that success is the way we partner with our customers to develop innovative solutions that improve performance, address complex challenges, and advance sustainability across the industries we serve. Last week, we announced the winners of our 2026 HB Fuller Customer Innovation Awards. These awards recognize customers who have developed solutions delivering measurable advances in sustainability, safety, and performance.

Winners are selected based on innovation, market impact, technical achievement, and successful collaboration with HB Fuller teams. This year, we honored Ben Dasmil, General Trading Company, and Huda Maki for innovations that demonstrate the power of collaboration and technical expertise. Ben Dasmil was recognized for developing an innovative, prefabricated HVAC insulation system that improves protection against condensation and corrosion in hot, humid environments. Working together with HB Fuller, the company incorporated our Foster Neo-Cloud protective vapor barrier technology into an off-site prefabrication process that reduces installation time enhances long-term system reliability and helps extend service life in demanding climate conditions.

Huda Maki was recognized for ProDairy, a recyclable paper-based dairy cup designed to reduce plastic use while maintaining the performance required for chilled food applications. Leveraging HB Fuller's adhesive and coating expertise, the solution significantly reduces polyethylene content, improves recyclability, and supports our customers' circular packaging goals without compromising product performance. The innovations recognize this year span diverse industries but share a common objective, applying science, engineering, and collaboration to solve real-world challenges and make products and systems more sustainable, efficient, and reliable. We congratulate both award winners and thank all of our customers who continue to work alongside us to bring innovative solutions to market.

Their success reinforces our confidence in the long-term growth opportunities created by our technical leadership, customer intimacy, and commitment to innovation. We look forward to celebrating both award winners here in St. Paul, Minnesota, on adhesive and sealants day on September 29th.

Now let me provide a brief update on our proposed acquisition of advanced medical solutions. We continue to make strong progress through the required regulatory approval process and remain on track to close the transaction by year end. From a financial standpoint, we are committed to our deleveraging plan and expect leverage to return to our targeted range of two and a half to three times within two years of closing, supported by the strong cash generation profile of the combined company Augmented by Quantum Leap. We remain confident in the strategic and financial merits of acquiring AMS. The transaction will enhance our portfolio, strengthen our position in attractive healthcare markets, and further support our long-term growth objectives. We look forward to welcoming the AMS team and sharing additional updates on our next call.

In closing, our third quarter results demonstrate the steady progress we are making across the business. We are expanding margins, advancing our operating efficiency initiatives, and maintaining a disciplined approach to execution while also positioning the company for its next phase of growth. Taken together, these actions strengthen HB Fuller's foundation for long-term value creation. That concludes our prepared remarks for today. Operator, please open the line for questions.

Sure. Yeah, so as we looked at the second half, Mike, we had anticipated that we would see more customer constraints on materials outside of adhesive. We knew we could supply, but we were concerned that they would be able to get all of the materials they needed to produce their products. And while the market has been tight on a lot of materials, it hasn't been so much short.

So that resulted in a little better volume performance than we anticipated. I would also add that the demand markets are fluctuating a lot more than they usually do. Our order patterns are fluctuating more than they usually do. We're seeing instances where customers are especially mid and small size customers are in mass doubling the amount of time or the interval between their orders. And then sometimes they shrink rapidly, particularly when the headlines are out that the price of oil has dramatically increased. So it does make volume a little more difficult to predict in this environment. In this particular quarter, we saw volumes much stronger at the end of the quarter than at the beginning of the quarter for the first couple of months, in fact.

And that strength has continued into P10.

Okay, Mike, maybe I'll try to take this one and then Celeste can add commentary. So you're looking ahead to 2027, focusing on things that are, let's say, specific to HB Fuller will have fully lapped the impact of our exit of solar. So that was sort of an overhang for three quarters this year. We're now beyond that. It will be an overhang next year. Obviously, closing of AMS, we're adding a higher growth business.

I'd say there's a few markets in EA that were challenged. And these are more external issues. Maybe I'll pivot to sort of external impacts. Certainly, electronics has been challenged with chip shortages. We're hopeful that that is not an issue next year that's impacting both electronics and auto. And the construction markets have been very sluggish with high interest rates.

And the impact that's having on residential. Again, don't know whether that will be resolved next year or not. But if we were to see some movement there, that would be positive. And then in HHC, as you know, it's largely driven by large CPG customers, which have struggled. So it's probably more dependent on external forces and some of those I've named.

But we have a couple of things as it relates to the portfolio improvements that we've made that should support better growth going forward.

I would supplement that, Mike, by saying I think China is the region to watch for 2027. I was really pleased with our performance in Asia this quarter, because despite the fact that there was the consumer environment in China's week, and that electronics, some of their export markets were off, we still performed very well in Asia, thanks to HHC's ability to grow their business there and share in the packaging markets in particular. You know, Europe's looking up, and that's exciting. So I think it's less of a risk for us for 2027, more because we are gaining share in that region, being a reliable supplier matters more than there in the ability to bring innovation to market matters.

And then I would say that, yes, to John's point, while construction remains weak and is definitely something to watch, I feel strongly that our BAS businesses has brought innovation to market that has allowed them to continue to grow in a in a declining market. So, you know, I think watching construction, watching China are the key areas of risk for 27.

Yeah, so I mean, if you think about HHC, I think one of the biggest challenges that HHC faces is a couple of market-wide changes. So, you know, one is certainly the introduction of the GLPs. A lot of our materials in HHC go into the packaging and markets, a lot less packaged food now being consumed. And, you know, you can see that in a number of the, you know, CPG, food companies results. And the second thing I would say is, you know, that's a business that I think sometimes we overlook is really very heavily influenced by household formation. And, you know, we aren't seeing residential home building happen. People are not moving as much for jobs.

There's a lot less mobility. And so, you know, that weighs on, people aren't filling new cupboards. People aren't changing out materials in their homes. And so, that also, I believe, has weighed on the HHC business in the last couple of years.

Well, I can't comment on their performance in the last two or three months. What I would say is they did just, they did just announce their first half performance. I would refer you there. They showed adjusted EBITDA, improving by 8%, first half of 26 versus first half at 25, which is how they report. And they reported a 4% revenue increase over that same period of time.

So, you know, we're really excited, David. You know, that's a business that we're looking forward to having in our portfolio. And as we look at that business and have made our own projections, you know, we think that's a business that will be growing about 8% a year on average. So, good organic growth prospects there.

Yeah, the EA business performed incredibly well in Europe in this last quarter and strong in the U. S. So, overall, I don't see the segments compromised. In fact, automotive has bounced back in Q3 versus where it was in Q2. The real challenge in the EA business in Q3 was in Asia, particularly in China. So, I've slowed down in electronics, fewer shipments of EVs. And so, that weighed on the business in the quarter. But the good news is now we are wrapping around that solar impact.

So, we'll be clear of that come Q4.

Yeah, and I can add just a little more detail on the trends because SLS is right. If you, you know, adjust for solar, the business has been growing mid-single digits from a volume standpoint, load of mid-single digits, and it's very consistent. I think the only change from Q2 to Q3 in volume was largely driven by electronics, as SLS mentioned.

Yeah, so if you look at just overall next year, I would say high level, the way that the year will play out is you'll see some carryover of pricing and raw materials happen in that first half. That'll transition more to the benefits from quantum leap starting to flow through in the second half that we mentioned. As far as pricing, yes, the teams, as you know, got out early on price and started raising price in Q2. You know, our job isn't done. We continue to raise price judiciously where it's warranted.

And I say that based on region and market segment and technology base. So, yes, we are still implementing price increases and we're anticipating that'll flow into the first half of next year. Yeah, I think Gonsam just, you know, for purposes of kind of a P&L standpoint and these comments exclude any impact of AMS. So, last mentioned, you know, we will have carryover pricing, but we'll have carryover raw material impact as well. And, you know, we got out quickly on pricing, raw materials tend to lag. So, you know, as you look at this year, you know, we've got a positive spread between pricing and raws. We would expect that we would have, you know, a positive gap between pricing and raws next year, but not as significant as this year because we still have raws that we'll be rolling through.

That'll primarily be a first half of the year phenomenon, as Celeste mentioned. We'll sort of have annualized against that and probably there'll be very little, you know, difference between pricing and raws, assuming markets don't move significantly in the second half of the year. Quantum leap, as we said in our remarks, should contribute about 20 to 25 million of incremental savings next year. That'll be more weighted to the back half of the year. And then we'll have the normal kind of inflation, you know, merit increases, which have been in that 25 million dollar range. So, you know, aren't we see, you know, a V1, 2027 that will grow, top line and bottom line, obviously, carryover pricing will help that from both the top line and bottom line standpoint, as will quantum leap.

And we'll provide, obviously, a lot more detail in our January column.

So those are sales of manufacturing facilities and the land associated with those, facilities, and we will use those proceeds to pay down the one-time costs that will experience with severance and other closure costs.

Yeah, we exited the quarter at 7.6% Jeff. So we got a lot of that price early that's been working its way through. And that'll continue to take up as we continue to adjust our pricing for any raw material changes that occur. You know, we talked about pricing on average, but, you know, it's true, you know, pricing changes happen differently in different regions or based on different technologies. So we've been very judicious and I would say responsible in our pricing, our objective is to cover raw material cost increases and maintain our margin. And that's that's what our plans continue to be for the upcoming year.

Yeah, so deleveraging will be a very, very high priority for us. As you can imagine, as soon as we close the AMS transaction, Jeff, in fact, we are already working hard on trying to bring our debt level down. And I would say there's going to be changes in a number of areas. You know, one of those is, as I've said before, every August, our global market segment leaders come in, they present their three-year strategy for the business. You know, we do a rigorous portfolio review after that. In fact, you know, it was that what prompted the sale of our flooring business in 2025, for example. And I'd say we've just been through that exercise here again in August.

And coming out of that exercise, I'd say, you know, we're putting even more scrutiny and a much more critical lens on those business plans and really challenging ourselves to determine if we are in fact the best owner for every one of those market segments. So, you know, the possibility that we will divest something is something, you know, we're taking very seriously because we know it would accelerate reducing our leverage. You know, the other thing is, we're at a nice point in quantum leap where we're going to be able to really generate more cash flow as a consequence of that. Maybe, John, if you want to, like, walk through the improvements to cash flow that we're going to see because of quantum leap and because we're going to be able to operate differently because of the changes we're making through quantum leap.

Sure. And yeah, that is one of the reasons we, you know, feel good about our deal averaging plan is the cash flow benefits that quantum leap brings. Obviously, we've talked about the 75 million dollars of reduced conversion costs, you know, with about 50 million to come. That's obviously an operating cash flow impact. But one of the key elements is with the changes we're making in our warehouse structure, we think we've got an opportunity to reduce working capital inventory specifically, substantially, at least five days, which would be 35 million dollars of benefit in operating cash flow. And then in CAPX, you know, we'll see that come down. We've probably spent about 50 million dollars related to quantum, enabling quantum leap this year in CAPX, as we said in our remarks, that'll be less than 25 million next year and eventually go to zero.

And the fact that we're, you know, we're getting out of effectively a third of our plants, we would expect maintenance capital to come down, you know, by roughly a third, which would be 15 million dollars. And then project one is kind of our SAP deployment, what we call project one is coming to effectively an end in terms of implementation. We have 97 percent of our revenue on one instance of SAP. And we've probably spent about 25 million dollars year in CAPX on that. And that will, will be substantially less. So, so all of those things will be positive as it relates to our cash flow and our deleveraging plan, as Celeste said, if there was an opportunity to potentially divest something that could further accelerate that, we'd definitely look at it.

It should be down. And I think AMS will be a little less than the 20 million you quoted, but it'll be in the teens. But yeah, we would say, you know, just related to certainly the fact we're getting through the heavier spend related quantum leap and the working capital opportunity we see, I'm sorry, on CAPX of the SAP project coming to an end, both of those things should result in the reduction in CAPX, even with some additional capital from AMS.

Sure. So, yeah, I can give a little bit of color on that. So, you know, the impact we're seeing is, you know, largely delivered by pricing execution, you know, relative to raw materials flowing through. As we discussed, we got out fast on pricing. A lot of that took place in the second quarter. We did take some additional action. So, in the third quarter, we get the benefit of actions that we're taking during the second quarter, flowing through to the third quarter. We had some new pricing actions. And raw materials are a bigger headwind this quarter than they were last quarter, but we had more pricing to offset that. So, we sort of talked about this third quarter being sort of the period when we'll see that biggest gap between pricing and raws.

And we would expect that to narrow a little bit next quarter simply because we'll see more raw material cost rule finally rolling through the P&L. But we're also getting savings related to Quantum Leap. You know, by the end of this year, we'll have 25 million dollars of savings that we've been able to achieve on a run rate basis, about 15 million this year. And that's kind of ramped up through the year. So, those are really the two things that have driven the margin expansion. And yeah, we think we will have margin expansion next year for some of the same reasons. As I said earlier, you know, pricing and raws should be positive, you know, less than this year, but still positive.

And then Quantum Leap will have a bigger positive impact next year.

Yeah, the medical, actually the use of surgical bonding is not just stable, but of high growth medical and market. And there's a number of reasons for that. I mean, certainly the number of procedures continues to increase even in a longer rate environment. We'll still see more procedures. And there's a growing number of smaller procedures, procedures where the use of medical and market to continue to grow quickly. In fact, that was one of the things we really liked about having it in our portfolio. It delivers strong organic growth at a high margin rate.

And it allows us to balance out some of the cyclicality that we have in the industrial end markets, as well as in the construction market. So, we think it makes for a really nice balanced portfolio, and it'll be that growth spark that endures, even when the market is challenging.

Sure. Happy to, Kevin. So, as you mentioned, we do have bridge financing in place. So, we are assured to have financing. To close the transaction, our plan would be to execute the take out financing prior to close, having a contingent on the close. And we're quite far along, I would say, in planning for that.

Expect to see strong interest and feel highly confident that we'll be successful. If you kind of look at the structure that's still being discussed, but it'll probably be some combination of of short term, term loan B type loans, and probably unsecured type bonds, we obviously want to make sure that we have ample amounts of debt that we can repay quickly because we plan to deliver quickly. So, that'll be reflected in the structure.

Financing rates, I would say right now, sort of eight-year fixed rates are probably in the six and a half to seven percent range, shorter rates, term loan B. They've been pretty consistently around 175 to 200 basis points over sulfur. So, that is kind of what we're seeing right now. And as I said, we'll be moving to finalize the financing before the deal closes.

Yeah, it's so hard to index this business against, you know, a collection of macro metrics, because we are in so many different end markets in so many different regions. And when you think about it, big picture, it's an $80 billion market, and we're less than 5% market share. And so like being able to dial in volumes in the adhesive space versus a macro collection of indices is really hard. You know, one of the things that we do in the adhesive industry is, you know, we bring to our customers high mileage adhesives. What I mean by that is, you know, they'll start using an adhesive. And in order to further optimize production, a lot of times we'll work with them to bring them a higher value.

And you see that in higher price adhesive that they can use less of. And so that's a dynamic that's constantly occurring in this market. And so there's a component of that that you see that really disassociates it from the macro trends. Particularly the fact that our share is so low. You'll see it in a lot of our spaces. You know, when construction or automotive are doing badly or when the number of, you know, mobile phone handsets is declining. We will still be growing our business in those spaces largely because we're able to take share through technology and because we have a low share position.

So Lucas, I'll add a little color and you kind of recap some of the key drivers of next year from a financial assumption standpoint. And I would say, I don't know that I conclude, you know, low single digit or even mid single digit, e-bit of growth yet. I think and we'll come forward with all of that in January. It obviously depends on the broader macro and we'll probably will have more of a view on that in, you know, three and a half, four months. But I think we still think there's a lot of benefit that is specific to the things that we're doing from an execution standpoint. As I mentioned, you know, the pricing raw benefit will be positive next year and we're ready to, as Celeste said, you just usually take additional actions if we need to and the quantum leap savings are meaningful.

So we'll lay that all out. I think you've got the right key considerations and we'll provide a sort of picture as to where that gets us. But we'll grow, right? We'll grow. We'll grow next year. We grew this year. We grew last year. So we will grow.

Yeah. And I think, you know, the, I would also, I'm also positive about next year, particularly because when you look at our, again, our position in this industry, it's a $80 billion industry and our share is less than 5%. And we now have, you know, teams that are working hard, hitting on all cylinders to deliver great innovation to our customers and it's making a difference. You know, just look at BAS, not, that's a very constrained market, particularly here in the US, yet that team has introduced new products that they have used to grow share. In fact, we put out a press increase on Monday where we announced the expansion of our 4SG Cofinity product range with really some new products that have decidedly better benefits for our customers and building owners.

And so, you know, that is the way that we are going to continue to drive improvement in EBITDA. It's not just, you know, pricing and the regular volume mix, it's bringing innovation and it's also delivering on our quantum leap commitment, which is on track as John indicated and will at its conclusion deliver $75 million to run rate savings that will influence EBITDA very favorably.

No, in fact, the EMS team, you know, continues to make really good progress on their Peter's surgical synergies. So, when we quoted our synergy target, recall that we were getting the benefit of synergies related to their closure of five facilities and they are well on track and delivering on that commitment. So, we end up stepping into the business when there's already synergies in flight, which is very helpful. Now, when you look at the market structure, it's a market, as I indicated before, that's growing rapidly. The use of tissue bonding in surgical procedures continues to grow. The combination of the two businesses makes us the second largest surgical tissue bonding company in the world. And that's a position where we anticipate not feeling the challenges of the macro environment, but more so being able to expand the business in that environment because it's less oriented to the fluctuations of the industrial or the construction spaces that we're in today.

Yes. So the board fairly considered the offer for BAS. And in any case, if we receive an offer for a component of the business or the business itself, the board's going to do its fiduciary duties and fully evaluate that. In the case of BAS, as we indicated, it's significantly integrated into the company as a whole. And that's not unusual. In fact, if you look at our business, we have now 62 plants around the world that generally produce two or three different materials and produce them for 15 to 20 different market segments.

So, you know, they are assigned to a GBU. That's more for management purposes. They, in fact, are technology-based. And so, we have a lot of businesses here that are really entwined like that, as you would expect, in our production and sourcing, raw material sourcing environment. In this case, we think that we're the best owner of BAS. But we're always open-minded and willing to consider other alternatives that make sense.

Yeah, and that can come in a little bit on just, you know, the disenergies. As opposed to quantifying them, I'll kind of describe, you know, where they come from and then, you know, how we think about them in light of a potential divestiture. You know, there's obviously stranded costs that you're always going to have with a divestiture. We did with flooring. Flooring was a business that was relatively untangled with our other businesses that we had. Six dedicated manufacturing plants for flooring, the materials they bought were fairly unique to the flooring business. With BAS, you know, they probably manufacture in 25, 30 different manufacturing facilities, probably two-thirds of which they're sharing with the other businesses. So, they don't have a lot of dedicated plants.

So, that creates some disenergies. On the sourcing side, BAS is roughly 20% of, you know, HP Flers' revenue. They probably represent about 35 to 40% of the solvents we buy. So, they would have a significant impact from our purchasing power as it relates to that material, which would impact other businesses. So, those are the things we look at and, you know, all of those are over, you know, we can overcome all of those, right? If we could, depending on the potential valuation of sale of an asset, but they're real considerations, and they were meaningful enough with BAS that we thought we should mention them.

Thanks very much for joining us this quarter. We look forward to talking to you in January. This concludes today's call. Thank you for attending. You may now disconnect.