Avient Corporation

Good morning, ladies and gentlemen, and welcome to AVEN Corporation's webcast to discuss the company's third quarter 2024 results. My name is Michelle, and I will be your operator for today. At this time, all participants are in a 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 conference over to Joe DeSavo, Vice President, Treasurer, and Investor Relations. Please go ahead, sir.

Thank you, and good morning to everyone joining us on the call today. 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 forecast of future events and are not guarantees of future performance. They're based on management's expectations 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. We encourage you to review our most recent reports, including our 10Q or any applicable amendments for a complete discussion of these factors and other risks that may affect our future results. During the discussion today, the company will use both GAAP and non-GAAP financial measures. Please refer to the presentation posted on the Investor Relations section of the AVANT website where the company describes the non-GAAP measures and provides a reconciliation for the historical non-GAAP financial measures to the most directly comparable GAAP financial measures. A replay of this call will be available on our website. Information to access the replay is listed in today's press release, which is available at aviant.com in the Investor Relations section. Joining me today is our President and Chief Executive Officer, Dr. Ashish Kanpur, and Senior Vice President and Chief Financial Officer, Jamie Beggs. I will now turn the call over to Ashish to begin.

Thank you, Joe, and welcome everyone. I am very pleased with our third quarter financial performance, which proved to be our second consecutive quarter of organic sales growth. We delivered sales of $815 million for the quarter, representing 8% growth over the third quarter of 2023 on an as-reported basis and .5% organic sales growth, excluding the impact of foreign exchange. Both segments, color, additive, and inks, and specialty engineering materials, grew sales. The growth was broad-based across all geographies and most end markets. The drivers behind the above-market growth were consistent with what we discussed last quarter. We won share. We were specked in in new product launches from our customers, and there continued to be some restocking in certain end markets. On the bottom line, the team delivered adjusted EBITDA of $130 million, which reflected 6% growth over the prior year third quarter. Both segments expanded EBITDA margins by 40 basis points each, driven by favorable mix as well as operating leverage from increased volumes. Our commercial and operational efforts more than offset the -over-year headwind we faced in the quarter, related to the variable compensation accruals that we have previously communicated. Adjusted earnings per share grew double digits, up 14% over the prior year to $0.65, which exceeded our prior guidance for the quarter by $0.03. This was due to -than-expected demand and new product specifications for our color business in Latin America, as well as timing of defense orders. Our teams are executing well across the globe, and we are winning business by focusing on customized tactics tailored to each of the regions. In the U.S. and Canada, we have been focused on going deeper with our key global accounts and building new businesses related to some of the macro trends. In EMEA, we have been winning share by enhancing our customer focus and simplifying our -to-market strategy. In Asia and Latin America, we are expanding our customer base through more local account penetration. In short, we have adjusted and deployed our commercial teams in ways to capitalize on the specific opportunities presented in each region, and we have had success. As we evolve as a company and start executing our new strategy, we have made some key organizational and structural changes in the recent months. First, we have streamlined our color additives and ink segment under a single global leader and eliminated organizational complexity, particularly in Europe. We want to make it easier for our customers to do business with Aviant and start seeing things from their lens. We want to provide them solutions and options to help solve their problems. It's an important step as we become more customer-centric and agile, all differentiators and enablers to our expectations of organic growth. We have reorganized select parts of R&D and consolidated certain talent from across the organization to enhance our capacity and capability in specific areas prioritized for growth. This consolidation also enables our technical expertise to be broadly leveraged across the entire company versus just serving individual businesses. Additionally, we continue to strengthen and build our leadership team that will help execute our strategy and take Aviant into the future. Since my joining the company, we have hired a new chief legal officer, chief information officer, chief technology officer, and created and hired for a new role of senior vice president for new business development and marketing excellence. These important changes are directly aligned to our strategy to grow profitably and build new businesses of scale while also leveraging digital tools to drive productivity and growth for the company. Furthermore, we are prioritizing the company's portfolios with differentiated expectations and resourcing them based on where the businesses are on their life cycle curves. Lastly, starting next year, we are changing our compensation structure to more directly aligned to driving the company's strategy and desired behaviors to win in the market. We will share more at our investor day in December, but I wanted to share a few items and some perspectives today on how we have been working to drive both top line growth and margin expansion for our future. Before I turn the call over to Jamie to cover the details of our third quarter results, I also wanted to highlight that earlier this month, we did increase our dividend by 5% to an analyzed payout of $1.08 per share. This marks the 14th consecutive year the company has increased the dividend since its inception in 2011. I view this as a reflection of our confidence in the company's underlying earnings growth and commitment to returning cash to shareholders. Now, I will turn the call over to Jamie.

Thank you, Ashish. The team continues to execute well and delivered another strong quarter with robust organic growth, which slightly exceeded the guidance we provided back in August. As Ashish mentioned earlier, total company sales grew 8% driven by underlying volume growth of 7% and positive price mix of 1.5%, which was slightly offset by FX headwinds. The underlying growth and the positive net price benefit more than offset the reset of variable incentive compensation expense, resulting in adjusted EBITDA growth of 6% versus the prior year. Adjusted EPS of $0.65 reflects 14% growth versus the prior year. In addition to EBITDA growth, adjusted EPS also benefited from lower interest expense from the $100 million of debt paydown that we completed in August of 2023 and the opportunistic repricing of our term loan at that time and then again in April of 2024. Before reviewing segments results for the quarter, let's take a look at our regional performance. Beginning with the US and Canada, which accounts for 41% of our total sales, the team delivered 9% growth versus the prior year with nearly every end market growing. Building and construction sales in the region grew 21%, led by strong demand for our composite panels, which were replacing conventional building materials. Also noteworthy for the region was healthcare, where sales were up 15%, driven by restocking, as well as strong demand for drug delivery and monitoring devices. Our technologies and relationships with key strategic OEMs allow us to participate in the secular growth trends to outpace general market growth. Latin America once again had a very strong quarter, growing organic sales by 27%. Packaging is the primary end market we serve in this region and it benefited mostly from new business wins for applications used in personal care. Our presence in Latin America is also strategic, allowing us to serve global OEMs and brand owners who are looking to near-sorb their supply chains in light of political uncertainty with trade flows and tariffs. We are well positioned to participate in this trend and expect to see continued growth in this region. Sales in EMEA grew 5% driven by restocking from packaging customers, particularly in food and beverage, as well as continued strong demand for defense applications. This is partially offset by weaker demand in transportation, linked to lower automotive production, and in the telecommunication applications, which for the time being remains challenging. The Eurozone economy continues to be sluggish with the manufacturing PMI at its lowest in nine months. Accordingly, we are cautious on business and consumer confidence in the near term and remain focused on what we control, serving our customers in the best way and winning share. In Asia, sales grew 11% driven by new product launches and consumer applications, as well as strong demand for drug delivery devices and healthcare. Turning to a review of segment performance, our start with color, additives, and inks, which grew sales 7%. The packaging in market, which represents about a third of segment sales, was up low double digits during the quarter. Most of the growth in the SEND market stemmed from the Americas, particularly Latin America, where we won new businesses for applications used in personal care packaging. It's also important to note that packaging continues to show recovery in Europe, where creating sustainable products are a high focus area of our customers. Building and construction sales also contributed to color's growth during the quarter, growing double digits. This is driven by restocking in certain applications, new business wins, and share gains, particularly in EMEA. The increase in demand, favorable mix, as well as some raw material deflation, grew adjusted EBITDA by 9%, and expanded EBITDA margins by 40 basis points. Moving to our specialty engineered materials segment, sales grew 10% organically. Approximately one-third of the sales growth was driven by increased demand for Dyneema applications used in protective equipment for the military and law enforcement. Another one-third of the segment sales growth came from composite materials used in the building and construction and energy markets. Our composite materials are replacing conventional building materials used in residential housing to improve strength while reducing weight, and in some cases, the overall cost of construction. These attributes also play well in the energy market, as the need for reliable energy distribution, combined with the increase in storm activity, continues to put pressure on the electrical grid. Composites used in insulators and utility poles offer high strength solutions to support the hardening of the grid. The remaining one-third of the segment sales growth is primarily related to demand in consumer and healthcare end markets, where we continue to see strength. All in, SEM's adjusted EBITDA grew 12%, and EBITDA margins expanded by 40 basis points, driven by favorable sales mix from increased composites and healthcare sales. Turning next to guidance, we are providing updated ranges for our full year outlook. Specifically, we are nearing our ranges in line with our prior midpoint guidance as the year continues to unfold as we expected. Our revised guidance for adjusted EBITDA is a range of $525 million to $530 million, and adjusted earnings per share to a range of $2.63 to $2.67. Our full year adjusted EPS guidance now represents 11% to 13% growth over the prior year. As we start the fourth quarter, we are seeing similar demand trends in the US and Canada, as well as in Asia. In EMEA, we expect muted sales growth due to weakness in the automotive market, and a local comparison for defense sales, given the strong fourth quarter last year. The full year adjusted EPS guidance reflects a range of $0.46 to $0.50 per share for the fourth quarter. Similar to the third quarter, the fourth quarter includes a $15 million or $0.12 headwind related to variable compensation accruals. Interest expenses expected to be approximately $104 million for the full year, slightly lower than our previous guidance of $105 million. During the third quarter, we refinanced our senior notes maturing in May of 2025, extending the maturity to 2031, with a new interest rate of 6.25%. The additional interest expense associated with a slightly higher coupon on the new debt was more than offset by lower interest on our variable rate debt due to the recent rate cuts by the Fed. Our expected effective tax rate and investments remain unchanged from our previous guidance. I will now turn the call back over to Ashish for closing remarks.

Thank you, Jamie. During our last earnings call, we communicated that we will be having an investor day in December. I am pleased to announce that we will be hosting this meeting at the New York Stock Exchange on the morning of December 4th. I'll be joined by Jamie and other members of our leadership team, where you will hear firsthand the in-depth details about our new strategy and long-term expectations to deliver profitable organic growth into the future. Registration details will be forthcoming soon, and we look forward to seeing you there. Finally, I want to close by saying a big thank you to the global AVN team, who once again delivered top and bottom line growth this quarter. I am confident in our collective ability to finish the year strong. That concludes our prepared remarks for today. Operator, we are now ready to begin the question and answer portion of today's call.

Thank you. To ask a question, please press star 11 on your telephone and wait for your name to be announced. To withdraw the question, please press star 11 again. And one moment, please, for our first question. And the first question will come from Frank Mitch from Fermium Research. Your line is now open.

Hey, good morning, and congrats on being able to see the year unfold as you had expected. That's a rarity these days. I wanted to drill into the end markets. You mentioned the last quarter that seven of the nine segments grew in the second quarter. How is that in the third quarter? You called out telecom as being challenging, but I'm just curious if there were others that were challenging and not able to grow.

Yeah, Frank, thanks for the question. I think the same story kind of repeated. Seven of the nine still remain in the right growth stage. Actually, we saw pretty good growth in pretty much all seven of them. Quite balanced growth, I would say. The two that remain challenged are telecom, as we had previously telegraphed, and that continues to be the case and will probably be the case going into the future for a couple of more quarters at least. And then also transportation. You know, we were expecting it to flip around. You know, as you saw, the global car builds are quite, have been reduced. There's a lot of inventory in the parking lots with the cars and with the interest rates high. Especially what's happening in Europe and the whole China dynamics as well. You know, overall, we were seeing that transportation did not grow for us. So apart from transportation and telecom, all the markets showed pretty healthy growth for us.

Thank you. Very helpful. And if I could come back to building and construction, you mentioned composite panels being particularly good. And then, you know, immediately in my mind, I was thinking, oh, commercial data center or something like that. But you highlighted on the residential side. Now, if I'm building a new house, I'm not sure I'm putting in composite panels, but I guess I would be. Can you talk a little bit more about that application?

Yeah, sure. So it's a new business development that our team is leading, our composites team is leading, Frank. And obviously, there is a trend of building housing fast. As you can imagine, the US is a lot of shortage in housing market. So there are companies now that are building parts or modular rooms, could be a bathroom, could be a kitchen, whatever, using composite panels and then bringing them into the otherwise completed out the shell of the building. And so we expect that to be a trend. Also, we are seeing composites being used more and more, as you know, outside decking applications and things like that, which is also going into residential market. And then also, you know, this whole area seems to be a trend for us and we are seeing a lot of interest from our customers and we are building some new businesses in this area which we did not play in before.

Very helpful. Thank you.

Thanks,

Frank. And our next question will come from David Wong with Deutsche Bank. Your line is open.

Hi, good morning. As first question, if I look at gross margins for CAI, it's still up 90 bips in the quarter, but the expansion was smaller than the first half. Is that just a function of less raw material deflation? And I guess Q4, do you expect that expansion to be even smaller given maybe some raw material inflation here?

Yeah, you have it right, David. So part of it has to do with raw material inflation coming down in the back half. They only had about $3 million come through in the third quarter versus a much higher amount in the first quarter. So that's a piece of it. In addition, we have this incentive accrual reset that also is impacting the back half of the year. As we mentioned on the call for the total company, it was $15 million in Q3, $15 million in Q4. So as a percentage of sales, as we look at seasonality going from Q3 to Q4, we do expect slightly lower gross margin for color as we head into the back half of the year.

Okay, got it. And then secondly, I guess, how should we think about, you know, if we assume no change in underlying demand, how should we think about volume growth that can be delivered, you know, through a new product introduction and share again in 2025? And if we think about the bridge from 2024 to 2025, any other, you know, percentage that you can help us to bridge to a number for 2025?

Yes, David, I think we are not going to provide any guidance for 2025 at this stage. Okay, that will be probably not a very call when we make the Q4 earnings report. But let me just answer your question in a different way. You know, if you look at our growth, this 8% growth that we had in Q3, about 50 to 60% is coming from underlying market demand as well as restocking. We saw some restocking in certain areas and the remaining 40 to 50% is coming from new share gains as well as new business in areas that we were not playing in before. So I think clearly our expectations are to grow faster than the macro by, you know, leveraging our new product development and innovation. And that's particularly, that's part of the top of mind thing that I've talked about before. And, you know, market share, you see the teams are doing for the last two quarters a great job winning applications and without giving any prize, by the way. So we did not give any prize in Q3 and we are still winning applications and gaining market share. So that's an exceptional execution by our commercial teams in the field. So you can, I would say that's the trend we are on and we would like to continue to be on that trend. Okay, thank you.

Thank

you.

And the next question comes from Michael Cisson with Wells Fargo. Your line is now open.

Hey, good morning. Nice quarter and outlook. I think she's, you know, I haven't heard a lot of companies talking about restocking for what it's worth. And I mean, your organic growth is pretty impressive. Why do you think companies are restocking? Most of the outlooks we've seen from other companies are looking for things to decelerate or have decelerate. So I'm just curious maybe by end market and why they are restocking and, you know, why is fundamental demand seem better for you guys and a lot of other traditional chemical companies?

Okay. So, you know, a couple of areas of restocking we saw was building and construction was one area, especially in the U.S. and Canada. You know, we have some applications in pipes and fittings area where we saw some restocking happening. And then also we saw restocking in health care area, both in United States and Canada as well as in Asia. This is more for our respiratory application areas, but also catheters and tubing in health care. And then, you know, overall some restocking happening in consumer and packaging as well, both in Euro but also in United States. So we are seeing, you know, if you look at some of our customers that are in Latin America where we grew very well, some of our customers performed very well as well. So they are seeing improved demand in that area and we are there to supply them. There is an issue on where these customers are located and where they manufacture in Latin America. And there is sometimes a drought and the shipment to those places become difficult. And so some of our customers restock in advance to make sure they don't run out of inventory to serve the local demand. And that was also part of the restocking. And that's all in packaging and consumer areas for Latin America as

well. I think one thing to add, Mike, is that as we look at back in 2023, there was a substantial amount of destocking that happened. So part of this is less destocking comparisons. And so that's helping with some of the comps on a -over-year basis.

Got it. And then, Ashish, maybe could you give – you alluded to this in prepared remarks, but there seems to be some distinct cultural changes that you made over the last year. Can you maybe highlight some of those, particularly on the growth front? And then maybe what you think we should be looking for at your Analyst Day in December, besides a really good giveaway?

Okay. On the customer side, the company has a great culture on execution and financial prudence. And so we are trying to just build on the strengths of the company and see what else can we add to what was already a strength. We have really sharpened our pencil on the commercial side, and we are focusing – getting into more in-person calls with customers, increasing the number of in-person calls, and also the execution rhythm. We are focusing on that on a commercial side. As we mentioned in the remarks, the customized tactics for local regions seems to be playing out well. And that's something that is our strength. We are in every geography, and we have to use that local relationships and local customization. And understanding of local customer nuances, that can really differentiate us from competition. And then the third thing we are trying to do is really trying to get more into macro trends, which are secular in nature and typically tend to be much higher growth market segments versus the classic markets that we play in. And so how can we intersect those market trends with our technologies to really increase our sales in those areas and build new businesses even in those areas? So those are from a commercial side. We are trying to do those things and weave that more into the culture. We are starting to see things from a customer perspective more and more. Sometimes a few of our teams would call on the same customer, and we are trying to make it easier for our customers to do business with us. And so we are really simplifying our org structures and removing organizational complexities in certain areas to start seeing things from what the customer wants and how we can solve them as one bigger ambient. And that was the whole back-end consolidation on R&D that we mentioned. We are seeing convergence of, for example, color and composites coming together. If you think about decking as an example, house decking, we supply colors for the decking material. We supply functional additives that help to process those materials and make decks out of them in a faster way. And then we also supply composite filament tapes and laminates, which reinforce those decking materials. So if you see it from a market perspective, they need the whole solution of both the composite side and the color side. And we need to start seeing things from that perspective versus individual teams going and selling their parts of the product. And so as we have prioritized our markets, which you will see in the investor day coming to your second part of the question, we are going to be building teams and going after certain markets which we have identified as higher growth for us. And we are going to be organizing our structure to serve those markets and win those markets in a fast way. The other comment I would just make for the investor day, Mike, is that I've been talking about top of mind things for Avient. For me, it's top line growth and margin expansion on bottom line, amplifying innovation, and building leadership and talent for Avient of the future where we want to take it. And so these are not discrete things, but they are three interconnected and I would say interdependent things. And you will hopefully see them come alive in our strategy on the investor day where how the strategy will connect to all those three pieces and how we will bring it to life going forward. So maybe I'll leave it there and more to come on December 4th.

Thank you. Thank

you.

And our next question comes from Lawrence Alexander with Jeffreys. Your line is open.

Good morning. I just have a couple of questions. One is, can you break out a little bit some more granularity on what's driving the growth in Asia and Europe? And particularly the angle I'm interested in is to what extent do you think you should be at a benefit from any cyclical acceleration in those markets? Or are there more secular markets you're chasing kind of not going to give you the same cyclical lift? So I just want to understand the trade-offs there. And then the second one is with reference to the discussion you just had about shifting the culture, at larger chemical multinationals or multi-industrial multinationals, when these sorts of initiatives happen, there's a lot of huffing and puffing to get like 50 to 100 basis points of better growth. But when you look at the segment levels, you often see much more dramatic acceleration. But there's always an issue around cannibalization and churn and giving up some businesses that are atrophying. What's your impression with avian as to how much of a drag you'll see? Or should we be thinking kind of five to ten years out a significantly different margin structure and growth algorithm?

Okay, that's a loaded question, Lawrence. I'll try to address both of them. So on Asia and Europe, Asia for us is about $550 million, and about 55% of that is China, and another 25% or so is Southeast Asia. So between China and Southeast Asia, you're talking 80% of our revenue there. And the three driving forces, the three areas where we really did very well in Asia was consumer, especially consumer discretionary area, healthcare, and industrial. And so we grew just for example, if I did look at the Greater China area, we grew 6% last quarter in Greater China area, and this quarter we grew 11%. And those numbers are much higher than the GDP growth of the area. So we are growing above the macro in that area. So what's driving it is those areas that I was talking about, consumer healthcare. We have won some specs with certain key OEMs, and these are healthcare trends in drug delivery for obesity as well as remote monitoring, diabetic glucose monitoring devices. And so we are seeing, this is a new business of course, and we are seeing growth in that business as the whole market is growing very fast there. On the consumer side, we have seen some of the government stimulus start trickling in, especially in some certain consumer discretionary items. And people, we are seeing some increase spending, especially in the appliance area, and we are gaining share there. And then also when I look into China going forward in Q4, we expect in Asia too, we expect that to be in high single, mid to high single digits growth for Q4 as well as a trend. So we expect our continued performance in those areas, and the areas that are going to grow are going to be the same three areas that I just mentioned. With respect to Europe, it's an interesting story. It's more about taking market share there, but also certain secular markets like healthcare. I mentioned glucose monitoring devices, drug delivery devices, but also respiratory care and stuff like that. We are winning healthcare in Europe. For us, healthcare was 18% growth, for example, in Q3. Defense was another big thing in Europe for us, 28% growth in defense and with all the war and issues going on there, that has been a tailwind for us from a business perspective. And then also taking some share in building and construction areas, especially in the Middle East, Asia area, where we are gaining some share in certain applications related to artificial turf and so on and so forth. So we did get some packaging and consumer tailwinds as well. Some of that was restocking, but also we won share in packaging applications in EMEA. So I think when I look into Q4 for EMEA, by the way, EMEA grew 4% in Q2 and 5% in Q3. And when we look into Q4, I think the color side of the business will still grow low single digits, continued in that consumer packaging area that we are seeing. But the SEM side of the business, which was getting more tailwinds from the defense application, that will disappear. And so overall, we see a little bit of muted growth in Europe for Q4, largely because of tele-transportation and telecom still being big headwinds for us there. Now, from a culture perspective, the second question that you asked, what we should expect going forward, I think the culture we are trying to set is that we believe we are seeing faster growth because we are winning share. Obviously, you know, if you think about what are the different sources of growth, there's underlying market demand, then there is some erosion, business erosion, that always happens because you're losing share somewhere or you know, and then there's new product development, which will get amplified into the future, which will create new businesses even for us. And then there's a market share gain. And then there could be M&A, but that's not in the near future for us. That's more longer term strategy when the time is right for us. But right now, we are more focused on gaining market share as well as building new platforms for growth, especially in high growth spaces and leveraging our technology to come up with solutions approach. From a customer perspective, you know, what are these platforms that we want to develop? So that's how we are thinking about it, Lawrence. I think, you know, that should over time give us differentiation. The innovation should result into margin expansion because differentiation leads to price differentiation and that leads to margin expansion. So apart from increased volumes, that will also help us run our plants better.

Thank you.

Thank

you, Lawrence.

And the next question comes from Vincent Andrews with Morgan Stanley. Your line is open.

Thank you. Good morning, everyone. Maybe Ashish, on the reorganization announcement that you made, I assume that's coming with some cost savings. So I'm wondering whether your plan is to let those fall to the bottom line or whether you're going to reinvest those for growth?

Yeah, I mean, you know, honestly, we are doing this mostly because, you know, to grow the business and, you know, getting more streamlined around the customer needs. And so that has been our focus. You know, some of those savings have been coming as we have reorganized and we are seeing that as part of the margin expansion that we are seeing. But I think mostly the reorganization is around the strategy of what we are trying to deliver to grow the top line and the bottom line. I think most probably savings and productivity will come as we implement our digital strategy. And we hired a CIO and some folks who are experts in that digital area as well. And there's some low-hanging fruit here with respect to we are not talking necessarily artificial intelligence only, which is also part of the strategy, but even low-hanging fruit of how we can use digital and -to-day operations for the productivity in the company and in our manufacturing plants. So that part should start implementing and into more bottom line expansion, you know, into the future years. But I think for 2024, the restructuring is really not around the cost savings. It is more around growing the business and serving the customer.

Very good. Jamie, if I could ask you on free cash flow, just looking at the nine months to date cash flow statement, you know, there's been a big, not a big, but I mean, there's been an increase in working capital. So I'm just wondering how that's going to settle out in the fourth quarter. If you can just give us a sense of what free cash flow might be. And then just a specific question on the working capital, the accrued expenses and other assets and liabilities. What's in there that's making that go up about 30 million year to date?

Sure. Yeah. So year to date, we've had $55 million of free cash flow. Q4 is typically a quarter where we generate a lot of cash. If you look back to Q4 last year, we released 110 million. That really has to do with how you're kind of picking up on it, how working capital plays out as the seasonality continues through the back half of the year. Working capital from a full year perspective runs about 12%. And because of the net growth that we've had year over year, we expect that to be about a 10 to 15 million dollar use of cash. We look at a full year basis. And then your question on the other kind of accrued that relates to the incentive. Basically the difference between the expenses and the cash that was paid out in 2024 because the accrual was low in 2023.

Okay. Thanks very much.

You're very welcome.

And our next question comes from Kristen Owen with Oppenheimer. Your line is now open.

Good morning. Thank you for taking the question. Ashish, you touched on this in a number of your responses, but maybe to put a fine wrapper around it. A lot of the commentary, I think you said 50% of the growth in the quarter is coming from new business wins and share gains. Just help us unpack how much of that is coming from some of the commercial actions that you've already described, sort of the alignment of those actions and thinking about full solutions rather than point solutions, versus what's coming down the innovation pipeline. Are you getting into these new categories because you've got new products to serve? So help us unpack those two and then I'll have a follow up.

So Kristen, I would say that out of that 50%, about half is coming from new business development in these high growth areas that we are going after. And about half is coming from market share gains because of commercial activity. And there could be 40, 60 or 60, 41 or another, but it's in that ballpark. And so we feel pretty good how our teams are getting more and more engaged in some of these high growth trends. And I have today have been working with our customers for some time as well. And now we are just making the bet bigger and bolder and going in a bigger way after some of these things. So I think that's starting to show some traction, especially as the economy improves and more money flows in areas like building and construction and grids and electric grids. And these are secular trends. Again, we are changing secular trends. And so we are seeing more momentum in those areas. And winning share is going to be an ongoing thing. I mean, that's something that we have to do every day and get better at our commercial activity. And as we implement digital tools and things like that, we should continue to start creating differentiation and win there. So, but that, you know, obviously the share winning is not a linear function. And after a while, you will see some tapering in with the amount of share that we can get. But I think it's something that we need to, again, we are playing to win. We are not playing to defend. I guess that's the message I tell my team every day.

That's great. Thank you. So on that secular trend piece, I mean, you've talked about telecom being this drag for several quarters, understanding that there's some legislative red tape that is causing that. But, you know, it seems like fiber line since the acquisition has really just been slower to evolve and to become what was intended when that was initially bought into the portfolio. You know, as you're thinking about deploying capital towards those areas of growth and given the outline that you've described for fiber line, like how you think about that, that, that telecom business in the context of future aviant, where you want to deploy capital, is that something that you would look to maintain in the portfolio, just given the relatively minimal synergies that it has with the rest of the portfolio?

Yeah. So, Kristen, I think, first of all, fiber line has been down for a few quarters now, as you pointed out. And again, we are seeing, you know, we are beginning to lap, you know, like in the US, we were up 20% or so in the US. But that's not because the volumes are growing, it's because we are lapping for coms and last, you know. So nothing to write home about. I think our bigger issue in fiber line has been in the IMEA area, Europe specifically, where, you know, we have been seeing a lot of material coming in from China at highly reduced prices and subsidized prices that we cannot compete against, basically. So that has been a bigger problem on the fiber line, apart from that the bead money has not flown yet at a project level within the US and not expected to flow maybe until the end of next year. So I think it's a really interesting thing that we are watching closely. Our teams are taking actions and have been taking actions throughout, and we have been, you know, looking at our structure and our plant structures and everything like that in that context to see how we can best optimize and play the game. You know, this is a volatile business. And so when we are thinking about the aviating of the future, obviously, you know, we are, certain businesses are more cyclical than others, and we have to make sure that we balance that to come up with a more reduced variability in our portfolio as well as our output of financial results. So in that context, we have to manage this accordingly. We haven't, you know, it will be part of the portfolio, but maybe the bigger thrust would not be, you know, on this side of the business, given how the market is looking right now and the volatility and the competition we are seeing from China.

Thank you.

And our last question comes from Mike Harrison with Seaport Research. Your line is now open.

Hi, good morning. I was hoping that we could go through Latin America in maybe the same level of detail as we talked about Asia and Europe. I'm particularly curious if you can talk about how you are positioned in Latin America in terms of capacity and commercial resources in some of the key countries. And is this a region that you feel like you can continue to grow organically or at some point does an acquisition make sense?

Yeah, I'll start, Mike. So Latin America is primarily packaging. We do have some other in-market exposure as well. And we have plans both in Mexico as well as in other parts of southern America as well, including Brazil and a few other places. So we have plenty of capacity to be able to take on growth there. At this juncture, we're not looking at any M&A activities or acquisitions because of our manufacturing locations and how we're able to serve customers. We do expect healthy growth there. This is an area that we continue to look at in terms of taking our technologies that we've been very successful in other parts of the world and really translating it to that region, which hasn't had as much exposure to it. And then in addition to that, it's just a faster growing region. Part of that would be related to near-shoring and the other part being it's just an emerging region overall. So we're excited about what we have going on there. The commercial teams have done just a great job of really advocating for what technologies can do there and how we can upgrade our customers' products at the end of the day.

All right. And then maybe another question for you, Jamie. The balance sheet is below three times net debt to EBITDA at this point. Can you talk about whether we might start to see some share repurchases? I know it sounds like you're de-emphasizing M&A activity right now. But is share repurchase going to become a bigger priority for capital deployment? And can you also remind us what your target leverage range is going forward?

Our target leverage range is actually closer to two and a half, Mike. So until we get to that point, share repurchases are at least in a meaningful way or not on the table. We have historically, not in the last few years, just because of the M&A activity, have offset share dilution with share repurchases. So that could be on the table, but no meaningful share repurchases at this juncture until we get our balance sheets at a healthier level.

All right. Thanks very much.

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