Avient Corporation

Ladies and gentlemen, thank you for standing by, and welcome to the fourth quarter 2020 Avian Corporation Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question-and-answer session. To ask a question during this session, you will need to press star, then 1 on your telephone. Please be advised that today's conference is being recorded. If you require any further assistance, please press star, then 0. I would like to hand the conference over to one of your speakers today, Mr. Joe DiSalvio. VP, Treasurer, and Investor Relations. Sir, please go ahead.

Thank you, Michelle, and good morning and welcome to our fourth quarter 2020 earnings call. Before beginning, we'd like to remind you that statements made during this webcast 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. Please refer to the investor presentation for the webcast posted on Avian's website for a number of factors that could cause actual results to differ. During today's discussion, the company will use both GAAP and non-GAAP financial measures. Please refer to the presentation posted on Avian's website where the company describes the non-GAAP financial measures and provides a reconciliation for historical non-GAAP financial measures to the most directly comparable GAAP financial measures. In addition, unless otherwise stated, comparisons to prior year will be pro forma for the clarient master batch acquisition, as if the business had been together during all periods referenced. Joining me today is our Chairman, President, and Chief Executive Officer, Bob Patterson, and Senior Vice President and Chief Financial Officer, Jamie Beggs. Now I will turn the call over to Bob.

Well, thanks, Joe, and good morning, everyone. I'd like to start this morning in the same way we had the last few quarters with an acknowledgement and words of support for those who have been impacted by the COVID pandemic. The rollout of a vaccine brings new hope, yet this pandemic is not over and we remain mindful of the many ways it is impacting people around the world. Our heartfelt appreciation goes out to the countless frontline workers and first responders as they continue to play such an important role in the response. Looking back on 2020, it was certainly a year like no other, and I'm extremely pleased with how we finished delivering record fourth quarter results. The demand we reported in December surpassed our expectations as every segment and region grew over the prior year. Fourth quarter sales increased 8% to just shy of $1 billion, which is a record for Avian. Demand for applications in consumer and healthcare applications strengthened considerably. From a bottom-line perspective, this growth, coupled with clarient synergy capture, increased our EPS to 52 cents on an adjusted basis. That's better than we expected back in December and 73% higher than the prior year. As I said, each of our three segments delivered strong revenue and operating income growth for the quarter with SEM leading the way. EM had its highest ever quarterly operating income, expanding that measure by 58 percent, driven by demand for our composite technologies and in the outdoor high-performance space. Color, additives, and inks also achieved record operating income, growing 45 percent. The color segment certainly benefited from early synergy capture and the reopening of the economy. but also contributing with increased demand for consumer applications as well as gains in healthcare and sustainable solutions for food and beverage packaging. And lastly, our distribution segment had a strong finish to the year with demand improving in consumer and healthcare applications. So it truly was an outstanding performance to finish a very challenging yet important year. Certainly everyone will remember 2020 for the pandemic and how it affected so many people around the world. For our associates and our stakeholders, it will also be remembered as a pivotal year, one of new beginnings, resiliency, and a validation of our workplace culture. In July, we completed the transformational acquisition of the Clarion Master Batch business, and we became aviant We chose our new name to inspire our associates and to go to market with a brand that better represents who we are today, not who we were 20 years ago. But more importantly, this new name and brand sent a message that this was not an acquisition of Clariant MasterBatch by Poly1. Rather, this was an opportunity to bring two world leaders together and create something better. And we are. better together. And I'm also so pleased with the previous investments that we have made in composites, which helped EM to deliver the results they did for the year. In total, we navigated a global pandemic to deliver 11% adjusted EPS growth for 2020. We generated the highest level of free cash flow in the company's history. ultimately de-levering the balance sheet from 3.5 to 2.7 times net debt to EBITDA, and all within six months of closing the master batch acquisition, which is a year and a half ahead of schedule. It was a galvanizing year for us. We took care of each other and our customers. I say this all the time, but really mean that culture is everything. We've built a great one here at Avian, And this was evidenced by our certification as a great place to work based on employee survey scores of all our associates around the world. The Clariant Masterbatch acquisition has certainly got a lot of attention this year as it should. It's transformed our portfolio, particularly our presence in high growth and less cyclical end markets. As the chart shows, nearly 60% of company sales now come from healthcare, packaging, and consumer end markets. You know, and when we think back to March of last year, as the world was bracing for a significant economic downturn, there were those who questioned how well the master batch business would perform through such a period. And now we know, and the 2020 performance demonstrates the quality of the business we acquired, and we are only scratching the surface of its ultimate potential. We talk a lot about the cost synergies, and we're ahead of schedule in that regard, projecting $35 million in 2021, and in total, it's $75 million. But what we're really excited about is what the business brings longer term, such as complementary technologies and high-growth end markets, the joint innovation power of our combined assets and collaboration, a unified focus, on the next generation of sustainable solutions and a broader opportunity to cross-sell among all aviant businesses. And this positions us uniquely with our customers. Next, for the last several years, we have been investing in high-growth end markets with a focus on what I just said, sustainable solutions and these new technologies. And I believe it's clearly paying off with better mix, and we have seen substantial margin expansion this year as a result. This is a big deal. For investors who followed us in our early years, you know margin expansion was a hallmark of our success, and it will be again. Previously, I mentioned our investment in composites and in the outdoor high-performance industry. We view this technology in this space as the next frontier of metal replacement whose performance and application can achieve superior benefits of being lighter weight without sacrificing strength. We started investing in this platform a number of years ago, and it really was a core part of our long-term invest-to-grow strategy. And as you know, we also dedicated commercial resources in a big way to a number of end markets, but specifically the outdoor industry. And over the last two years, we have seen demand increase substantially as we expected. Our portfolio of composites has grown, and our composites team continues to build momentum. It's exciting, and can't believe it's a driving horse behind the future growth and investment that we expect to see for the segment and the company. Free cash flow and capital allocation have been a strength for Avian for over the last decade. With the cash we generated this year, we were able to reduce our net debt to EBITDA, as I previously mentioned, confidently increase our dividend for the 10th consecutive year, and opportunistically buy back 1.3 million shares at an average price of $17.89. Behind all that we do is a robust and vibrant culture. In the fall of this last year, we conducted our employee engagement survey, inclusive of our newest associates from Clariant Master Bash. So this is 8,400 employees across 45 countries. And the survey results speak volumes about how well the integration is going, but more importantly about who we are becoming as Avian. I'm extremely proud that we were certified again as a great place to work. We have a culture that prioritizes our employees' safety, health and welfare, diversity and inclusion, values excellence in execution, and has a deep passion for helping our customers overcome their sustainability and material challenges. As you can see, we have accomplished a lot in 2020, and we also have great momentum to start 2021. We're excited to share our outlook for the upcoming year, which Jamie will do now.