Avient Corporation

Good morning, ladies and gentlemen, and welcome to the Avian Corporation's second quarter 2020 conference call. My name is Sarah, and I will be the operator today. At this time, all participants are in a listen-only mode. We will have a question and answer session at the end of the conference. As a reminder, this call is being recorded for replay purposes. At this time, I would like to turn the call over to Joe DeSalvo, Vice President, Treasurer in Investor Relations.

Please proceed. Thank you, sir. Good morning and welcome to everyone joining us on the call today. Before beginning, we'd like to remind you that statements made during this conference call may be considered forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements will give current expectations or forecasts of future events and are not guarantees of future performance. They're based on management's expectation and involve a number of business risks and uncertainties, any of which could cause actual results to differ materially from those expressed in or implied by the forward-looking statement. Some of these risks and uncertainties can be found in the company's filings with the Securities and Exchange Commission, as well as in today's press release. During the discussion today, the company will use both GAAP and non-GAAP financial measures. Please refer to the earnings release posted on the AVN website where the company describes the non-GAAP measures and provides a reconciliation from the most comparable GAAP financial measures. Joining me today is our Chairman, President, Chief Executive Officer, Bob Patterson, and Executive Vice President and Chief Financial Officer, Brad Richardson. Now I will turn the call over to Bob.

Well, thanks, Joe, and good morning, everyone, and welcome to our second quarter 2020 earnings call, the first ever as Avian Corporation. I'd like to begin our call today with an acknowledgement of support for those who have been impacted by coronavirus. Our heartfelt appreciation also goes out to the countless frontline workers and first responders as they continue to play an important role in a response and recovery effort. At Avian, our first priority remains the health and safety of our associates, customers, and all stakeholders. We continue to adhere to government guidelines and protocols, as well as other preventative measures to help stop the spread of the virus. As we do, we continue to serve our customers as an essential supplier and partner. On June 16th, we held a mid-quarter investor call during which we commented on our second quarter expectations in light of the pandemic. As we now share our actual results, we report we delivered adjusted EPS of $0.39, which is $0.03 better than we expected at the time. Recall that to provide an apples-to-apples comparison to the prior year, these results exclude the impact of the financing for the Clariant Master Batch acquisition. including the additional shares from the equity offering in February and the debt raised in May, our adjusted EPS for the second quarter was $0.28. The improvement was driven by an uptick in the sales in Asia in the last two weeks of the quarter and better-than-expected margins in color. We believe Asia is recovering from the pandemic, but also is a leading manufacturer of products that are specifically aiding in the world's response efforts. sales in the region increased 13% over the prior year. This was not enough to offset weaker demand in Europe and the Americas, however. In overall, second quarter sales declined 18.6% or 17% on a constant currency basis. That's a challenging decline for sure, but we have benefited from our historic efforts to reposition our portfolio with a greater emphasis on healthcare and packaging. Sales into these markets were up 7% and 3%, respectively, in the quarter. With the acquisition of Clarion MasterBatch, we take an even bigger step forward toward a more specialized and more sustainable portfolio. And the numbers speak for themselves. While we didn't own the MasterBatch business in the second quarter, they achieved adjusted EBITDA of $37 million in Q2, up slightly from what they reported in the prior year, Like us, they were deemed essential in the COVID response and recovery, and their associates continue to serve critical industries such as packaging, consumer care products, and healthcare. Recall that approximately 75% of their sales are into these end markets. And they also benefited from a strong presence in Asia, where they achieved EBITDA growth just as we did. For months now, investors have been concerned that we might be buying a business in distress from the pandemic. That simply isn't true. Here is what is true. We have acquired a business that is effectively achieving a run rate EBITDA of $130 million, which is what we estimated when we reported in December when we announced the acquisition. We are inheriting a very talented management team, and an organization with a passion for innovation and customer service. We have quickly validated our initial synergy estimate of $60 million and identified potential upside that we believe we can deliver, even in a COVID environment. We expect the acquisition will be immediately accretive to adjusted earnings per share in the third quarter, our first together. Excluding amortization step-up, which we have not finalized, we expect Clarient will add approximately 10 cents of EPS accretion in Q3. This approximates what we expect Clarient will deliver from a cash perspective. And recall from our December presentation that our three-year goal for EPS accretion on this same basis is 85 cents. So 10 cents in the initial quarter of ownership is a great start. This is an exciting time for us, and it is an important inflection point in our specialty journey. Brad is going to provide some further details on the second quarter, and then I'll make some closing remarks. Brad?