Avient Corporation

Today's conference is scheduled to begin in a few minutes. Please continue to stand by. Thank you for your patience. THE END Thank you. Thank you. Good morning, ladies and gentlemen, and welcome to AVN Corporation's webcast to discuss the company's third quarter 2021 results. My name is Gigi, and I will be your operator for today. At this time, all participants are in listen-only mode. We will have a question-and-answer session following the company's prepared remarks. As a reminder, this conference is being recorded for replay purposes. I would now like to turn the call over to Joe DiSalvo, Vice President, Treasurer, and Investor Relations. Please proceed.

Thank you, Gigi. Good morning, and welcome to our third quarter 2021 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 statements. Also during the discussion today, the company will use both GAAP and non-GAAP financial measures. Please refer to the presentation posted on the ABN website where the company describes the non-GAAP measures and provides a reconciliation for historical non-GAAP financial measures through their most directly comparable GAAP financial measures. Joining me today on our call 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 for some opening comments.

Thanks, Joe, and good morning, everyone. Today we are reporting record third quarter results that continue to reflect the transformation of our portfolio as Avian and demonstrate the impact of our key growth platforms. As you know, we've made deliberate and strategic moves over the past decade to evolve into the specialty formulator that we are today. The acquisition of Clarion's color business and the subsequent rebranding to Avian over a year ago was a pivotal point in this journey. Our current performance reflects these bold moves and the ones we have taken to transform the company toward a portfolio of high-growth specialty technologies. This year, we have achieved significant growth in sustainable solutions, healthcare, and composites. Add on nearly $50 million in run-rate synergies from the Clarin integration, and we are having a record year. In addition to that, we have reduced our net debt, or will by end of this year, net debt to EBITDA leverage to 2.1 times in just 18 months, which is about half the time we had originally planned from the date we announced the clarient deal. The clarient color business has been a tremendous success, which not only shows up in the numbers we're reporting and that you're seeing today, but also in the engagement that we see in our associates around the world every day. This engagement and commitment have served us well as we have seen unprecedented demand for our material solutions from all our segments against a backdrop of very challenging conditions. Our team has come together to deliver world-class service for our customers, our global footprint, flexibility in our operations, and dedicated manufacturing workforce have been difference makers, helping us manage through a myriad of supply chain disruptions and raw material availability issues, which I know you know all about. We have turned these challenges into opportunities and proved our unique value proposition to customers around the world. Our third quarter results reflect tremendous growth with sales up 32% and adjusted EPS up 52%. I'm very pleased with our performance and the discipline we had this quarter with respect to handling inflation, as well as the incremental costs associated with supply chain disruptions which are impacting everyone in our space. The magnitude of these items have been substantial, but so have our efforts to overcome them, both of which we will cover in more detail in future slides this morning. All three segments have performed exceptionally well. and all three contributed to our record results. Color additives and inks grew operating income 31% due to robust demand for our sustainable solutions. More and more of our customers are committing to using recycled materials, and our unique value proposition accelerates their sustainability goals. In addition, as I mentioned before, cost synergies achieved from the ongoing integration of the Clariant deal have contributed to these results. SEM's growth was underpinned by our unique composites portfolio serving telecommunications, namely the high demand for our fiber optic cable materials, as well as growth in healthcare. Distribution delivered record third quarter operating income, an increase of 33% over the prior year, driven by growth in healthcare and industrial applications, which were up 46% and 75% respectively. Over the years, our portfolio has undergone a tremendous and deliberate transformation with an increased focus on specialty applications that require more sustainable solutions and advanced performance characteristics. Not only has this been an important contributor to our recent sales growth, but the benefits of improved mix are clearly improving margins despite inflationary pressures. And we continue to make great progress on improving the margins of legacy clarion color as well. In the first five quarters of ownership, we have expanded the margins of the acquired business nearly 400 basis points. One driver of this improved performance is the acceleration of synergy capture between the two organizations. which contributed $12 million in the quarter, and we expect to achieve $50 million in synergies this year. I'm very pleased with our early integration progress, but I'm most excited about our combined innovative portfolio and long-term revenue synergies. An example is how well our portfolio is positioned to enable the use of more recycled materials. Virtually all of our largest consumer packaged goods companies have made long-term commitments to increase the use of recycled content in their products. This slide shows the significant gap between the percentage of recycled plastic being used, shaded in gray, and the amount needed to reach their 2025 targets. There's a tremendous opportunity to help these brand owners reach these commitments based on their current usage, as you can see in the chart. Using post-consumer recycled material has significant challenges, and our customers have leveraged our formulation expertise and solutions to bridge the gap in reaching their goals. You cannot just replace virgin material with recycled material. It takes knowledge and experience to achieve the precise color, address contamination, maintain physical properties, and manage recycled material quality. 100% of our innovation portfolio in the color segment is dedicated to sustainable solutions, and we are a leading expert in this space. Take this recent example from one of our customers. On the left side of the slide, you see a vibrant yellow-colored bottle achieved from using prime resins. The full breadth of the color spectrum is possible when the base resin is clear white. While on the right side, you see the resulting dull yellow that results from starting with recycled resin, which is grayish in color. So how do you overcome this? You need more colorants and or additives to achieve the same vibrant color, in some cases significantly more. And that's the plus factor for the demand of our products and solutions. as we enable the use of more recycled content. There are additional case studies and news releases on our website. I encourage you to check these out. Our most recent success story was posted last week as we collaborated with BIC to formulate a razor with 62% recycled content. The high-performance TPE solution enabled BIC to create a product that lives up to their sustainability promises. These are just a few examples of why sales for sustainable solutions are expected to grow 18% this year over last year, accounting for $930 million of total company sales. These solutions are solving our customers' challenges to enable a circular economy, reduce carbon emissions, and advance health and human safety. Slide 12 illustrates our third quarter performance by key growth drivers. all of which were up significantly, reflecting strong demand and pricing in all regions and end markets. Although we experienced some seasonality in the third quarter, primarily in Europe and Middle East, demand conditions were robust and continue to be. From an end market perspective, over half our revenue is tied to strategic end markets such as consumer, healthcare, and packaging. In particular, healthcare demand over the prior year grew 40% driven by new business and recovery in elective procedures. And consumer is up considerably as well with a growing strength in household goods and outdoor high-performance products. Overall, I'm very pleased with our results for the quarter. Our specialty strategy has enabled us to achieve record levels of revenue and operating income against the backdrop of increasing inflation, chain disruptions that have candidly gotten more challenging since the second quarter. Jamie will now cover the next couple of slides that illustrate how our pricing initiatives exceeded these increasing costs.