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.

Thank you. As Bob mentioned, we want to highlight the significance of inflation and costs associated with supply chain disruptions and how they impacted the third quarter. All three segments were proactive in raising prices throughout the period. As you can see in the bridge schedule, we have more than covered inflation. Beyond raw material inflation, we incurred an additional $19 million of costs related to supply chain disruption, exasperated by a shortage of labor in many regions. These costs manifest themselves in the form of increased overtime and less than normal production efficiency as we work to qualify new or alternative sources of raw material supply for our customers' unique formulations. These are costs that can be difficult to predict or quantify on a contemporaneous basis. We are operating nimbly and in real time as we seek to meet customer demand without sacrificing quality. The following slide illustrates how inflation and the impacts of supply chain disruptions continued into the third quarter. Here we walk our Q2 to Q3 sequential performance to highlight how we navigated the current market dynamics. To date, we have covered more than $300 million of costs associated with inflation and supply chain disruptions. Related to demand, the sequential decline from the second quarter is consistent with what we've experienced historically, and it's primarily due to seasonality in Europe and the Middle East. We also experienced weaker demand in Southeast Asia due to an increased number of COVID cases, which prompted localized lockdown. Heading into the fourth quarter, Demand continues to be strong for our formulations and services, reflected in the orders we have received thus far in October. We expect supply chain issues to persist for the foreseeable future and will likely see higher inflation. An area of uncertainty that is yet to play out fully is the energy crisis in China. While our plants have not been forced to shut down, some of our suppliers and customers have been subject to those restrictions, fueling fresh raw material shortages and higher energy costs. With that said, we are maintaining our previously communicated full-year adjusted EPS guidance of approximately $3 per share. We are on pace to deliver a 40% increase in adjusted operating income and a 55% increase in adjusted EPS, record performance in a year full of challenging conditions. And we realize many companies are reporting significant growth rates compared to 2020, as it's an easy compromise. which is why we also compare our full-year projections to pre-pandemic 2019 performance and want to remind our shareholders how Avian's performance is differentiated. Recall that in 2020, our EBITDA did not decline versus 2019. It grew. And our EBITDA projections for 2021 are 31% higher than 2019. This is a direct reflection of investments made to position the company to benefit from long-term secular growth trends, the quality of the clearant color business, and our team's ability to execute in a challenging environment. That concludes my prepared remarks. I'll now hand the call back over to Bob.

Well, thanks, Jamie, and that's great perspective. We have spent quite a bit of time this morning highlighting how we are managing the near term. But we need to also step away and put in all perspective to ensure that we're executing for long-term value creation. Record earnings, strong free cash flow, and the outlook for our business has enabled us to recently raise our dividend by 12%. This is the 11th consecutive year we have increased the dividend since it was initiated in 2011. We are committed to returning value to our shareholders, and now that our net debt to EBITDA is closing in on two times, we can also resume opportunistic share repurchases. Of course, We will continue to prioritize and actively seek acquisitions to leverage our proven operating model and reinvest back into our sustainable solutions portfolio. As we continue to de-lever, we have the balance sheet to support both bolt-on acquisitions as well as more transformational targets. There's a lot behind what we have been able to deliver this year thus far. And we can only go into so much detail on these quarterly calls with our investors, which is why we're excited to host our investor day in New York on a summer night. We will be taking a deeper dive into our sustainable solutions portfolio, provide more insight into our innovative technologies and our margin expectations. You'll hear from several members of our management team who will provide further insights into our long-term growth drivers, like how we help to advance the circular economy, our depth of applications with composites, fiber optic cable, and the important role that we're playing for healthcare customers and ultimately those receiving care. Look, it's something we're really looking forward to and hope to see many of you there in person. There will be a virtual option, but for those comfortable in traveling and gathering together, I think the experience will be all the more impactful. So with that, that concludes our prepared remarks today. We'd be happy to take any questions you have at this time.

As a reminder, to ask a question, you will need to press star one on your telephone. To withdraw your question, press the pound key. Please stand by while we compile the Q&A roster. Our first question comes from the line of Bob Coote from Goldman Sachs. Your line is now open.

Thank you. Good morning. Bob, I was wondering if you could talk a little bit about, obviously, your pricing offsetting raws is a novelty in the industry. You keep doing it. I'm wondering, is there any overlap or information advantage from distribution that enables that? Or can you talk maybe a little bit more about the synergistic benefits of that distribution business?

I don't think that I would point to distribution as necessarily beneficial. helping out with respect to pricing for color and engineered materials as they really are priced in very distinctly different ways. I would say that having a distribution business probably gives us more insight into inflation with respect to the cost part of the equation, so that's helpful. And then, of course, there is just a tremendous amount of connectivity between our customers, and there are so many of them who buy from all three of our segments, and I believe that's always been an advantage.

And then on your end markets, obviously consumer and healthcare are very big packaging. You know, there's some expectation that you had some surge activity in those end markets. Can you talk a little bit about how you see the path forward there in terms of rate of change relative to what you might have seen in the last year? Thanks.

Yeah, I mean, we did have really strong growth in healthcare and industrial applications in the third quarter. Obviously, to some extent, we're still comparing to some pandemic lows of last year. Obviously, as we get into the fourth quarter of this year, the comparables start to get more challenging vis-a-vis 2020, but demand conditions continue to be strong, and we see good growth in really those three key areas for us, healthcare, consumer, and packaging. And look, all along this year, packaging has actually been one of the slower growers for us, but that's because it was so strong in 2020. So it hasn't pulled back, it hasn't gotten weaker, and I think packaging is still going to be very important for us because of the demand for sustainable solutions.

Thank you. Our next question comes from the line of Frank Misht from Fermium Research. Your line is now open.

Hey, good morning, folks. Just curious who selected the picture for the decontamination on slide 9. That was kind of unique. I guess it gets the point across. If I look at your inflation statistics, you know, really helpful in looking at the sequential move, about $80 million 1Q to 2Q, drop down to $50 million 2Q to 3Q. Can you help frame us as to, you know, what ballpark are we looking at in 4Q, and then any thoughts on initial read on 2022?

So, I mean, everything that we have seen so far, Frank, is that – We're going to see more inflation, supply chain disruptions haven't abated. And so we are really planning on more of the same here. In the fourth quarter, we've got more and additional price increases planned and being announced presently, which I think will help us to handle that in the same way that we've done so all year. So I don't really see things getting any better you know, from an inflation or cost perspective, but believe we have it covered. One other aspect I'd say is I've always just been kind of cautious on the fourth quarter forecast historically because December has always been a little bit of a wild card with respect to, you know, how customers' buying patterns might change between December and January. And that could happen this year too. So, you know, hopefully we're being conservative in that respect, and we'll see how things play out. And then, look, for next year, you know, look, we're excited to share some insights into these long-term growth drivers and, you know, the areas of sustainable solutions, healthcare composites, and so on. And I think we lay that out in December. There is really strong megatrend pull for our solutions that's going to allow us to be able to deliver at those growth rates next year and beyond. So, no specific guidance on 22 at this time, but we'll be able to lay out a lot around the growth drivers and margin expectations.

Very helpful. And as you look at that wild card of December, you know, what are your order books saying? And I guess just in general, you know, you've highlighted the supply chain disruptions From time to time, has that constrained you? I mean, you know, would we have been able to see even greater sales? Obviously, you posted very strong sales in the quarter as is, but do you feel like you were constrained in some of your business activities and some of that is pent-up demand? Any help there would be helpful.

Yeah, so I guess there are two things. One, maybe I'll take the latter part first. Look, historically, we've got about 45 days worth of visibility from an order standpoint. And that actually looks good for October. The actual growth rate that we have for October is higher than what we have projected for the fourth quarter in total. So that kind of brings me back to a conservative assumption around what is going to happen in December, which we just really, really don't know at this point. Look, with respect to the supply chain challenges, this is the first year where I'd ever say we've had orders that we've struggled to deliver on a contemporaneous basis. Usually we can get an order in that 45-day time period and get it out in that same time period, and we've had some overhang this year simply because we're waiting on something from someone. you know, order of magnitude $15, $20 million in a month, so not a huge number, but one that's, you know, not a number that we're accustomed to. So there's an opportunity to catch up on that at some point in time when the supply chain improves.

Thanks so much, Bob.

Yep.

Thank you. Our next question comes from the line of Mike Sisson from Wells Fargo. Your line is now open.

Hey, good morning. Nice quarter, guys. In terms of acquisitions, you noted in the preparative marks that there could be other transformational targets out there. Are there ones in color, or is it more focused on EM or the recycling, sustainability action? Just curious where the scope of another transformational deal would be, given how well Clarion went.

First of all, there's nothing imminent, but we do have the balance sheet flexibility to pursue not only bolt-on acquisitions, but something bigger if the opportunity arises. There really are two areas of focus for us, composites being at the top of the list, which falls inside of our engineering materials segment, and then sustainable solutions being much of which are, or rather a lot of the opportunities that we're looking at do fall within color, but there's some that also fall within engineered materials. So that's the best way to kind of think about that. Mike?

Okay. And then in terms of on a sequential basis, Q4 versus Q3 looks like you're looking for maybe a normal seasonality sequentially, just Just curious, you know, what's sort of baked in there? I know you talked about more inflation, likely to get more price, and, you know, it sounds like there could be some issues in China in getting some raw materials. Just any thoughts there given, you know, I do continue to hear that inventory levels from customers and probably yourself are really low. So is it possible to maybe not have as much of a down sequential quarter?

Yeah. Two things to start with. From a modeling standpoint, seasonality for us really isn't about the weather. It's about just having a stronger first half of the year in Europe and the Middle East. That's playing out this year as we expected. You could be right. The inventory levels are low. We routinely hear that from our customers. Demand could remain strong through December. and see something better than what we have projected here. I do think it's very real that inflation is actually going up. Nothing has abated thus far. And I think we'll see more supply chain disruption costs. So that's just a balancing factor in the whole equation. But I do echo what you heard or said about inventory levels, because I do think they are still low.

Great, thank you. Yeah.

Thank you. Our next question comes from the line of Mike Harrison from Seaport Research. Your line is now open.

Hi, good morning. I was wondering if you could give some more detail. I like the slides on the recycled plastic packaging opportunity, but maybe a little more detail on how much more revenue you can get on a per package basis, you know, using recycled materials versus one made from resin or from virgin rather. How much more volume of those colors and additives are needed? How much higher value are those products that you're selling for recycled applications? And I guess I'm just maybe asking a different way. any sense of what the total addressable market for colors and additives in recycled plastic packaging could look like?

That's a teaser slide for our investor day coming up in December, Mike. So every one of the questions that you just asked, we will have good information around. You know, the answer is not so simple in terms of, we sell product X today and believe we're going to be selling something X plus Y because it does vary by color and it does vary by customer size. What I would tell you is that the brand owners have the firmest commitments, I believe, to use more recycled content and we can build a really good model with that. What we don't have great visibility to is what smaller players will do. They may not have the same sustainability-type goals or mission. But we're going to lay a lot of that out at the investor day, and we just need some more time to put that together. So hopefully we'll see you there and we can do it then.

Well, and presumably it's a substantial opportunity. My next question is on the distribution business. That's always been a very strong cash generator for you. I know it provides an outlet for products and some insights on what's going on in the broader market, as you addressed earlier. But at the same time, you've been on this journey of focusing the portfolio around specialty additives and materials. You've made this transition to becoming a formulator and a solution provider. I'm just wondering, is it time to reevaluate the fit of the distribution business and within Aviant and whether it makes sense to monetize that business and deploy the proceeds back into higher value product lines, areas where you're expecting secular growth over time.

Look, as you know, we've evolved our portfolio significantly over the last 12 or 13 years. We haven't been afraid to make divestitures. The most recent being the sale of PPS in 2019, ahead of announcing the acquisition of Clariant. So I do think that we take the right view and the right angle with respect to thinking about our portfolio. Look, one thing I would say is that distribution has been a cash-generating machine, but there's two really important, I'd say, commercial aspects of it that we you know, find to be strengths. One is the connection to healthcare. It's about 30% of their sales. And then, you know, second is just the overlap that we have with our other businesses. And I think it's been a real asset for us, you know, to Bob's earlier question, which I'm not sure I answered so great this morning, but, you know, a real asset for us during this inflationary time period. And then maybe lastly, I mean, look at 12% of total company EBITDA, right? So, You know, it's not as big as it once was on a proportionate basis. So I don't think there's anything, you know, urgent or pressing that we need to do. And there's more pluses than minuses at this point.

All right. Thanks very much.

Thank you. Our next question comes from the line of Angel Castillo from Morgan Stanley. Your line is now open.

Hi, this is Melissa Steinberg on for Angel. I was just wondering, in terms of pricing increases, is there been any pushback from customers on that, or is receptivity changing there?

I mean, customers are never happy with price increases. It's no different than it is for us when we've been getting price increases from our suppliers. I do think generally there is a great deal of appreciation for the supply chain issues and the shortage of supply, all of which I think is driving inflation. So I'd say there's been a fair amount of, let's say, understanding about the need for these increases, and many customers are doing the same things themselves, but no one is ever excited about a price increase. Neither are we, right? In terms of what we get from our suppliers. But we've been able to do it. Maybe we don't always get everything we ask for, but I think we've been able to make a lot of good progress this year.

Thanks. And then you noted inefficiencies and costs suspected in suppliers as a headwind. Do you feel good about where you are now, or more investments in capacity expected, and when could this potentially unwind? Thanks.

Yeah, I mean, look, I think it's like a real, there's kind of some hidden costs of inflation and these supply chain disruptions, you know, and they're pretty significant for us. I'm sure they are for other people. It's really a result of running overtime, maybe doing three different orders to fill a customer need versus just one historically. you know, or pre-qualifying another material or other things like that that have led to these costs and obviously freight and so on and logistics are all higher. But we don't have a capacity issue. We have, you know, plenty of capacity with the exception of labor, right? Really, it's only our capacity constraint is that like many companies, we haven't been able to get enough manufacturing associates. And if we could solve that, then some of these cost issues would go away. But more broadly than that, I think it's going to take a long time for the supply chain to get caught up to where demand is. It's the silver lining in this whole thing, right, is that demand continues to be really strong. So that's good.

Thanks.

Thank you. Our next question comes from the line of PJ Juvicar from Citi. Your line is now open.

Hi, it's Eric Petrion for PJ. Eric? You noted on slide eight all those brand owners that have targets for recycling capacities. Do you see any risks to them meeting this growth by 2025, either from a recycling capacity or, you know, collection of raw materials?

Oh, yeah. I mean, I think that there is a challenge to getting there because at present there isn't enough recycled content to meet those goals. But I think the brand owners know that. I think that that's pretty widely understood. But there is a fair amount of recycling infrastructure being created today and being invested in but I think there's a real chance that they can't get there by 2025, but they want to make substantial progress towards those goals. So, yeah, I think that's pretty real. Secondly, I think that with respect to the recycling infrastructure that's being put in place, it won't necessarily all go to these brand owners. I mean, there's lots of people who would like recycled materials, so my sense is there will be You know, a lot of demand for that material, and that's just another challenge with respect to hitting those goals.

Okay. And as a follow-up to that question, do you have enough capacity in colors and additives to meet the lockstep change in the recycling capacity investments? And just I know you mentioned the BIC razor and the 62% recycled content there. How long did it take for you to spec in your solutions for that product?

So the first question is, yes, we do. We don't have any supply capacity constraints in color, again, with the exception of hourly manufacturing associates right now, which are in short supply in many locations. But as a general rule with respect to machinery, equipment, footprint, and so on, well-positioned to handle you know, the growth in sustainable solutions. There will be some things that we add along the way in terms of specific machines, but not significant costs. And then, you know, we do a lot of work in the consumer space with companies like BIC, for example. And off the top of my head, I don't know how long the specification had been for that particular product. I can tell you as a general rule, you know, Once we're an incumbent in there, typically we're working on new products almost every year, you know, for razors and toothbrushes and so on. But I just don't know off the top of my head what the lead time was on that specific product. Okay.

Thank you, Bob.

Yep.

Thank you. Our next question comes in the line of Christian Owen from Oppenheimer. Your line is now open. Great.

Thanks. Good morning. Thank you for taking the question. So a lot of your customers are doing hand-to-hand combat over the last 18 months outside of some of the sustainable solutions, which I appreciate all the additional color on that today. But I'm wondering if you can talk about the innovation pipeline you're seeing with your customers. And you mentioned it in the context of clarion synergies, but can you speak to the state of your own vitality index at this stage?

Yeah, so look, from an innovation perspective, you know, it was interesting. In the second quarter of last year, third quarter maybe, it's kind of like innovation and sustainability just got kind of put on pause, right, because everyone was just so focused on this new thing called COVID and the pandemic and the lockdowns and so on. But as we've come out of that – You know, the requests from customers have just been increasing exponentially and almost entirely related to sustainable solutions and examples like what we use today to use more recycled content. So 100% of our color segments innovation pipeline is focused on sustainable solutions. And on a combined basis, our vitality index is a little over 35%. If I put color and EM together, we exclude distribution from that equation, as you know.

Great. And perhaps this is another teaser for the analyst day, but you called out earlier in the quarter the 5G opportunity and something near 50% CAGR for the industry. double-digit sales growth for Avian. You mentioned some of the strong fiber contribution this quarter. I'm wondering if you can break that down for us a little bit and how we should think about the cadence of that opportunity and your market share opportunity in that context. Thank you.

Yeah, I mean, maybe that was a little bit of a teaser slide too, but look, as I sort of reflect on and prepare for the investor day and I just think about my years with the company and There's been a lot of transformation with respect to focusing on becoming a specialty organization, now focusing on being a formulator. We've had to add a lot of commercial resources in the past. And when I just look at where we are today, one of the really important differences is that there are these really important megatrends. that are creating demand and pull for our products like we've never seen before. Telecom is a great example. 5G infrastructure build out. And at the investor day, we're going to show some maps with respect to how that rolls out, how that impacts our sales. And that's what gets us to these double digit growth rates in areas like that. The same is true for sustainable solutions. And healthcare. These are the three areas that we're going to spend a ton of time on in December, but there's really, really very good pull for all that. With respect to the third quarter, that actually was one of our best performing businesses in engineering materials, specifically for those applications in 5G. That kind of slowed down last year because of the plant closures in the second and third quarter, and it just started to ramp up in the fourth, so I think we're starting to see that pick up again this year, which is really good.

Thank you. Our next question comes from the line of Lawrence Alexander from Jefferies. Your line is now open.

Good morning. Two questions. One, can you give a sense for how much of your business you've seen in the past in similar periods of strong demand double ordering develop? And secondly, with respect to the supply chain, what are your suppliers telling you as to when they think they'll even have a line of sight towards normalization?

Well, with respect to orders doubling up, I don't think that's taking place anymore. I mean, I think that may have been at the earlier part of this year, particularly when we had the very cold weather in Texas and supply chain systems were threatened throughout as a result of those plant closures. I think that led to probably some customers putting in orders for more than they needed at a specific time. But I don't really think that we're seeing that right now. And then remind me, Lawrence, the second question.

Just with respect to, you mentioned that there's like so far no easing of the logistics issues. As you talk with your suppliers, what are they, is anybody even sticking their neck out and promising that they see a line of sight to normalization?

No, I mean, there's no, no, not at all. And, you know, I mean, candidly, demand is still very strong. And I think as it remains at these levels, it's going to be really hard to catch up. I had conversations with a couple of customers last week in the consumer space who said that they're kind of niche-ier type companies, but they said they're sold out, you know, through 2022. That's it. They already know. They've sold out their plant. They've got all the orders they can take. And they're still behind. You know what I mean? So as long as that demand dynamic exists, I think it's just really difficult for suppliers and everyone else to catch up.

Okay, great. Okay, thank you.

Yeah.

Thank you. Our next question comes in the line of Vincent Anderson from Steeple. Your line is now open.

Yeah, thanks. If I may, just kind of nibble around M&A a little bit ahead of the investor day. If I'm remembering correctly, you've tended to have a fairly long courtship period with many of the companies you've ultimately acquired. And I'm just wondering if, you know, with the drama with inflation, supply chain disruptions this year, has that maybe brought some of these targets closer to the table, given the procurement advantages your scale can provide? Yeah.

I don't think we've seen a change in those relationship dynamics as a result of supply chain issues. There are probably companies out there that are finding a way to have a really strong year because of demand, and that might be changing how they think about selling with respect to demand. know their performance this year versus last year but i don't think i can really make a connection to the supply chain issues or the cost side of equation as a reason why those discussions are you know any more fruitful now than they've been in the past okay fair enough um and you know with some of these attractive new end market weightings you know that have shifted with the clearant acquisition

Has that maybe helped inform additional investments in the engineering materials segment where you're seeing more opportunities either just from the new market intelligence that Clarion brought or outright cross-selling opportunities?

Yeah, I think there's been all of the above. Look, just in healthcare alone, first of all, I would tell you that one of the reasons why we love you know, the Clarion deal and had a lot of respect for Clarion as a competitor, you know, back before we were one company, was their really strong customer relationships, many of which had been entrenched for years. And there have been some really good introductions for our engineer materials segment in multiple industries. So we are seeing right now cross-selling opportunities across all of our businesses, but there's been some really good examples of specifically Clariant 2 engineering materials, which I think you were asking about.

Yep. No, absolutely. Thank you very much.

Okay. I think that's our last question, so we appreciate everyone's time today to listen to our results. Look forward to updating All of you in more detail at our Investor Day, again, on December 9th. I think we've got a release coming out shortly to ask about registration. So hopefully we'll see you all in person. Between now and then, take care.

This concludes today's conference call. Thank you for participating. You may now disconnect.