Q4 2020 Avient Corp Earnings Call
Ladies and gentlemen, please standby your conference call will begin momentarily once again, ladies and gentlemen, thank you for your patience and please stand by.
[music].
Ladies and gentlemen, thank you for standing by and welcome to the fourth quarter 2020 Atheist Corp earnings Conference call at the 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 the session. You will need of press Star then one on your telephone please be advised the today's conference of.
It's being recorded if you require any further assistance. Please press Star then zero I would like to hand, the conference over to one of your speakers today, Mr. Joe just aveo, VP Treasurer and Investor Relations. Sir. Please go ahead.
Thank you Michelle and good morning, and welcome to our fourth quarter, 'twenty and 'twenty 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 forecast of future events and are not guarantees of future performance.
And they are 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.
Please refer to the Investor presentation from the webcast posted on <unk> website for a number of factors that could cause actual results to differ.
During today's discussion the company and we use both GAAP and non-GAAP financial measures. Please refer to the presentation posted on Avions 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 Clariant 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.
And senior Vice President and Chief Financial Officer, Jamie bags.
Now I will turn the call over to Bob.
Well, thanks, Joe and good morning, everyone.
I'd like to start this morning, and the same way we have the last few quarters with and acknowledgment and words of support for those who have been impacted by the Covid pandemic.
The rollout of the vaccine brings new hope that 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 and the response.
Looking back on 'twenty and 'twenty. It was certainly a year like no other and.
And I am 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, and consumer and health care applications strengthened considerably.
From a bottomline perspective, this growth coupled with Clariant synergy capture.
<unk> increased our EPS to <unk> 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 SCM, leading the way.
E M had its highest ever quarterly operating income expanding that measure by 58% 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%.
The color of segments, certainly benefited from early synergy capture and the reopening of the economy, but also.
Contributing and was the increased demand for consumer applications, as well as gains and health care and sustainable solutions for food and beverage packaging.
And lastly, our distribution segment had a strong finish to the year with demand improving and consumer and health care applications.
So it truly was an outstanding performance to finish a very challenging yet important here.
Certainly everyone will remember 'twenty and 'twenty for the pandemic and how it affected so many people around the world.
For our associates and our stakeholders and will also be remembered as a pivotal year.
One of the new beginnings resiliency and of validation of our workplace culture.
In July we completed the transformational acquisition of the Clarient Master batch business.
And we became avian.
We chose our new named to inspire our associates and the go to market, where the brand the better represents who we are today not who we were 20 years ago.
But more importantly, this new name and met brand center message that this was not and acquisition of Clarient Master batch by Poly one 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 the we have made and composites, which helped to deliver the results. They did for the year.
In total we navigated a global pandemic to deliver 11% adjusted EPS growth for 'twenty and 'twenty.
We generated the highest level of free cash flow and the company's history.
Ultimately delevering the balance sheet from three and a half the two seven times net debt to EBITDA and all within six months of closing the master batch acquisition, which as of year and a half ahead of schedule.
It was of galvanizing year for us we.
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 Avion and this was evidenced by our certification as a great place to work based on employee survey scores of all of our associates around the world.
The Clarient Master batch of acquisition is certainly got a lot of attention. This year as it should is transformed our portfolio, particularly our presence and high growth and less cyclical end markets.
As the chart shows nearly 60% of company sales now come from health care packaging and consumer and markets.
You know and when we think back to March of last year as the.
The World was bracing for a significant economic downturn there on those who question how well the master batch business would perform through such a period.
And now we know and the 'twenty and 'twenty performance demonstrates the quality of the business, we acquired and we are only scratching the surface of its ultimate potential.
We talk a lot of about the cost synergies and we're ahead of schedule on that regard projecting $35 million and 'twenty 'twenty, one and in total at $75 million, but what we're really excited about is what the business brings longer term such as complementary technologies and high growth end market.
<unk>.
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 AVN businesses and this positions us uniquely with our customers.
Next for the last several years, we have been investing and high growth end markets with a focus on what I, just said and sustainable solutions and these new technologies and I believe it's clearly paying off with better mix and we have seen a substantial margin expansion. This year as a result.
This is a big deal for investors, who followed us and our early years, you know margin expansion was a hallmark of our success and it will be again.
Previously I mentioned, our investment and composites and and 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 and this platform of number of years ago and it really was a core part of our long term investor growth strategy.
And as you know, we also dedicated commercial resources and 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 candidly it's of driving the horse behind the future growth and investment that we expect to see for the segment and the company.
Free cash flow and capital allocation and 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 buyback of one 3 million shares and an average price of $17 and 89.
Yes.
Behind all of the we do is a robust and vibrant culture.
And the fall of this last year, we conducted our employee engagement survey.
Inclusive of our newest associates from current Master batch. So this is 8004 hundred 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 avion.
And I'm extremely proud of we were certified again is a great place to work we are of a culture that prioritizes, our employees safety health and welfare diversity, and inclusion and values excellence and execution and has a deep passion for helping our customers.
Overcome their sustainability of material challenges.
As you can see we have accomplished a lot and 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.
Thank you Bob as 2021 is already in full swing and we'd like to provide some context and outlook for the upcoming year. We clearly finished 2020 with impressive results and we are continuing and continuing to see robust demand and the first quarter of 2021, yet like everyone. We remain mindful that the coronavirus pandemic continues.
And with that kind of potential volatility as we make our way through the year.
Things that we can't control include the integration with Clariant I continue to be amazed at the energy and excitement that is being generated from the combined organizations and couldn't be more proud of how we've come together as a team and.
And for integration and the coming year, we expect to realize $35 million of synergies in 2021, which is an incremental $30 million of our 2020 <unk>.
The synergies will primarily be driven by harmonization of raw materials pricing and integration and administrative functions.
For the first quarter, we expect total company sales to increase approximately 10% spin.
Specifically, we expect the health care and consumer and markets to lead the way with strong double digit growth.
The care sales will be driven by new business gains and applications, such as glucose monitoring devices antigen test kits and specialized medical tubing.
We also see recovering demand for applications used in elective procedures.
Consumer sales of benefit from continued underlying demand for composite technologies used and outdoor high performance applications, such as snowmobiles and Atvs.
Packaging is also expected to provide mid to high single digit growth led by demand for our sustainable solutions for food and beverage packaging. And example includes performance additives that facilitate the use of recycled P T.
Lastly, certain end markets such as transportation should also provide growth benefiting from the economic recovery as automakers ramp up production.
The bottom line impact of all of this is that we expect to grow adjusted EPS of approximately 32%.
For the full year, we expect total company sales to increase 8% year over year, we expect all end markets to grow with the more cyclical markets such as transportation industrial and construction to approach 2019 level the.
This assumes the continued recovery through the second quarter and normalizing seasonality and the fourth quarter of 2021, which is why we project the first quarter sales to be up 10% and the full year to be up 8%.
For more details on our growth assumptions, we have provided a bridge from 2020 to 2021.
We've laid out for growth drivers of our business that we've talked about and all of our recent investor meetings and communicated through our investor materials. As you would expect we have line of sight to grow double digits and sustainable solutions health care and composite applications. We.
We have innovative product launches and 2021 that will capture new business, we see evolving COVID-19 applications that help and vaccine distribution.
Elective procedures and health care are also starting to recover.
In addition, we see increased demand for our sustainable solutions used in food and beverage packaging as well as light weighting materials used in the transportation space.
Lastly, we expect another robust year for outdoor high performance applications.
Of course underlying growth is underlying growth and GDP will also be a good guy for all of us.
As we discussed our 2000 and 'twenty performance benefited from certain Covid response applications, such as and 95 mask as well as certain outdoor high performance applications, which may not repeat this year. This may prove to be conservative, but if they don't repeat we estimate these two items to be approximately $40 million.
Foreign currencies are expected to add approximately 85 million or two percentage of sales based on current exchange rates.
Looking at how this flow through to operating income you can see the positive impact from our core growth drivers, which is huge as well as the bottom line contribution from Clarient synergy capture.
We do expect some higher costs this year due to higher incentives normal merit increases and potentially higher travel costs.
Generating free cash flow this quarter, our business model and this year will be another year of high cash generation, we do have some investments and working capital to support the sales growth as well as restructuring activities to capture synergies associated with Clariant.
From a leverage perspective, we expect the finished the year at two one net debt to EBITDA, we want to put our capital to work, which includes pursuing strategic M&A with the focus on specialty engineered materials, particularly and composite technologies.
I'll turn the call back over to Bob now for some concluding comments.
Thanks, Jamie before we take questions I wanted to share a couple of other slides that I'm sure. Most if not all of you have seen from our previous investor presentations.
And I'll start with this.
Avian is a new company, how where and why we win is important for our investors to understand because we have a unique position and play a critical role and product development for our customers. We provide over 21000 customers formulated solutions not commodities.
We do this fast we do this often and we do it all over the world with over 100 production and distribution facilities.
We are where our customers need us.
When we when we create value for you and all of our stakeholders.
We've covered each of these levers at various points throughout today's webcast, but in summary here.
Here are the key reasons, why we are creating value now and while we're set up well to continue to do so far into the future.
Our growth projections for 2021 reflect a strong start to the year and are appropriately conservative while we are benefiting from a combination of new business gains and early signs of economic recovery of the full year impact of when and how vaccine rollout will take place is still to be determined.
Regardless, we expect improving mix from continued strong demand for our sustainable solutions healthcare and composites as Jamie said.
And this along with synergy capture will drive 24% adjusted EPS growth.
This translates to EBITDA of $510 million, which will be by far the highest and the company's history and with significant upside and years to come for all of the reasons we've covered today.
And doing this will reduce our net leverage to two one times and have the balance sheet flexibility to invest in future innovation and M&A this year.
And as the CEO of this company, telling our story and articulating our value is one of the many responsibilities.
Have you may recall that I spoke on our third quarter Investor call about this we of sense included details and peer comparisons and our investor deck and we've repeated them here.
On plan the Gulf through them today, but I'll, just say that over time I believe we are going to be recognized for what and who we are and that is a business that has high touch and asset light with very strong growth prospects and sustainable solutions health care and composites to name a few.
We create a ton of cash we've got on awesome culture and that should not be overlooked.
And to continue to tell our story to a better and more often until it is understood and appreciate it.
That's my commitment to our shareholders and our associates and I got it and say I am pumped up to do it and.
We've covered a lot of ground of day on this webcast because we've covered a lot of ground. This last year, but we have even higher expectations for the years to come.
With that we'll open up the line for questions Joe.
And children of construction.
Well the.
Ladies and gentlemen, if you have a question at this time. Please press Star then one on your Touchtone telephone and answer your question has been answered or you wish to remove yourself from the queue. Please press the pound key to prevent any background noise and I ask that you. Please place your line on mute. Once your question has been stated.
First question comes from the line of Mike Sison with Wells Fargo. Your line is open. Please go ahead.
Hey, good morning.
That's on a on a on a strong 2020.
Bob can you maybe walk through some of the sales synergy potential you see with Clariant as you head into 'twenty one.
And I think and.
I think of 2021.
There is a really important focus that we have on basically business as usual when I think about combining the two legacy polyone and clearing organizations. There is obviously a ton of work to do.
Mike with respect to respond to.
The response and recovery efforts of Covid those are the highest priorities. So I think and 2021 its about identifying opportunities for future years and the areas of focus will be on sustainable solutions health care, most likely packaging as you would imagine.
And the work that's taken place so far is really looking at where we've got overlapping customer opportunities as well as overlapping.
The streams of and R&D and customer support activities. So those are the areas, but I really see the longer term benefit from revenue synergies coming in post 2021.
Got it and then for engineered materials composites has been has gained a lot of momentum over the last couple of years can you maybe.
Give us and update you know how big that business is now what type of growth do you see and composites and 'twenty one.
Yeah look it's just a little bit over it's about $200 million of revenue and total.
If you look at the bridge schedule the Jamie walked you through it we'll give you the composite assumptions for this year.
Look there is an assumption and the earlier this year that maybe some of what we saw on the fourth quarter doesn't repeat.
Maybe that's conservative we'll see how this year plays out but I think if you put those two together Mike that will help you get a sense for composite numbers for this year.
Great. Thank you.
Yes.
Thank you and our next question comes from the line of Bob <unk>.
Goldman Sachs. Your line is open. Please go ahead.
Good morning, Thanks very much.
On the color business, obviously, some sort of strong success there on the integration.
How do you think about maybe a matter of longer term target on the margin structure of it after you've harvested all of those synergies.
And what might you think is the run rate of a few years out.
Yeah, I mean, obviously, we are already off to a really good start there and <unk>.
<unk> the legacy Poly one color business as you know had EBITDA margins in excess of 20% and.
And I view that as a really good long term target for.
And what this segment can ultimately do together and we've talked a little bit about some differences between the two portfolios of legacy <unk> and versus legacy poly, one, but I don't see why we can't get back to that level of performance.
And then I know you guys have worked on ESG type stuff for quite a long time before of this fashionable and I'm wondering and I don't know maybe Jos the right that answers, but how have you seen inbounds from that investment theme and and what are you guys doing the cultivate that since it sure seems like a value.
And then option from the amount of companies out there these days.
Hey, Bob This is Joe.
And something that has been part of our strategy quarter, our strategy right. It's not something we just started doing because it became in Vogue and so it is part of our growth strategy. We do get a lot of discussions of our questions from inbound questions from investment of investors on this topic and if you look at our most recent sustainability report and really be fed up and added goals.
Long term goals and targets to help address some of the metrics that are out there from the regulatory bodies and the scenario and so it's really starting to gain some traction if you look at.
Some of the conferences, we'll be out here and the next couple of months, we'll be targeting ESG conferences with some of the sales side to help continue to promote this but it's really starting to gain traction and momentum and it's something that we've been doing for many years, it's not something that's new to us. So thanks for pointing that out.
Okay. Thanks, guys.
Thank you.
Thank you. Thank you and our next question comes from the line of Frank Mitsch with on My Research. Your line is open. Please go ahead.
Good morning, and then and my sense of the year.
Bob I wanted to follow up on the comment you made are you used the term your.
And I thought you use the term with respect the guidance, where you talked about appropriately conservative now it turns out that the 48% guidance you issued for the fourth quarter and the middle of December turned out that the appropriately conservative what the.
What went right.
And two to be able to post that the and in the fourth quarter.
Yeah.
So the comment that I was making conservative about really was related to 2021.
What I was saying I think we're being appropriately conservative and I'm happy to come back to that but with respect to specifically Q4.
Really it was almost entirely and.
We had some level of revenue beat which was candidly just demand across all regions and all businesses very strong finish to the year and a little bit better margins and the color segment.
Gotcha and.
I don't think I've ever been teed up better by of CEO to ask a follow up question. So yeah, let's come back to the appropriately conservative $2 40 for 'twenty, one well one thing that we have and this estimate is.
I think of really conservative sort.
And a second view on the second half of the year and specifically the fourth quarter of.
Obviously, it's way too early to call our project what is going to happen.
But the reality is the fourth quarter of 2020 was the strongest we've ever had typically we've got seasonality and this business and Q4 is typically weaker than Q3 that didn't occur in 2020 and.
So as we've modeled and created the 240 I think we've been conservative with respect to what we think Q4 of this year will look like secondly.
And I think we're also being conservative with respect of margins.
I, just think we're going to have better margins and kind of what rolls up and builds into those number but.
And what we'll see as the year progresses, we certainly had a great track record with margin expansion and the second half of 2020.
Very helpful and just to confirm you're currently modeling and fourth quarter to be seasonally down as it as it historically is relative to the third quarter correct.
That is correct.
Thank you Sir.
Yep.
Thank you and our next question comes from the line of P. J <unk> with Citi. Your line is open. Please go ahead.
P J your line might be on mute.
All right, we'll move to the next question. Our next question comes from the line of Vincent Andrews with Morgan Stanley. Your line is open. Please go ahead.
Alright. Thank you for taking on a question that the Angel Castillo on for Vincent just a quick follow up I guess on the cash deployment aspect.
<unk> I think in the past you had talked about being interested and composites and continuing to grow all of these high growth specialty businesses, but maybe there was a little bit of I guess the array or.
And back from COVID-19, and the ability to travel as you get looked at 2021 and where we are today. How are you seeing one of your pipeline of all and two are some of these potential opportunities continuing to move forward and despite the delays.
Yes.
I think the I mean, the dialogue is continuing with some of the opportunities that we started those discussions with last year.
Some feel a little bit like the or in a holding pattern and that's because of what you just said that we can't travel and really just feel like that's an unnecessary thing to do.
Sellers seem to be okay with that we're okay with that.
A couple of others, though that our businesses that we have already had a relationship with and know well that could be further along so it's kind of a spectrum of things I think that where the real challenge comes and of course is just if you haven't been of the plants. If you haven't met the team before really difficult to move something forward and so you can.
So in person.
That's very helpful. Thank you and then just wanted to ask about the free cash flow guidance of $250 million for 'twenty and 'twenty one.
Obviously, another strong year and some of you mentioned and some use of working capital as we think about the rollout of Clariant I think.
And just year over year of clean.
Assume kind of the first half of 2020. It wasn't included was a 30% and $75 million.
Tailwind for next year, and then and just thinking about working capital improvement I think in the past you had said that.
Improving or getting clarity on where legacy Polliwog and is it's kind of like of two to three point.
Points of improvement from a working capital perspective.
And I was wondering if that's included in the in the guidance, where that's potential upside.
Just from what you've kind of laid out.
And you are correct on the headline difference between their legacy working capital as a percentage of sales and our own.
And we do not have.
The current working capital non we're getting all the way to where our legacy poly one is in 2021, but we do have improvement on a percentage of sales basis and they're so could it be upside if we do better and certainly.
But for right now, we've just got a modest improvement.
Understood. Thank you.
Thank you and our next question comes from P. J <unk> with Citi. Your line is open. Please go ahead.
Hey, good morning.
Sorry about that can you hear me yes.
Yes, we've got it alright, thanks, Bob.
And when you gave guidance of 8% organic growth next year I mean next year I mean 2021.
Break that down between price and volume.
How much pricing power do you have and with oil prices and raw materials and general going up do you expect.
Any further pricing.
And then sort of related to that question on the organic growth and how much of your sales would you say are from products that were introduced in the last three years is that of matrix that you track. Thank you.
I'll take the last one first and that is we do track <unk>.
<unk> index. However, we track percentage of revenue from products introduced in the last five years. So I don't know the three year number but I can tell you and the last five years, our expectation as percentage of sales should be right around 36 or 37%. So we've always considered anything above 35 to be world.
Class, So I think and 'twenty 'twenty, one we'll be right on the.
And right down the fairway of what we where we'd want to be in that regard with.
With respect to the 8% sales growth there is some FX contribution and there you can see that on the British schedule that we've got in the deck you looked up beyond that.
<unk> view that growth is principally.
Underlying.
Unit demand and the.
And the reason why we come back to that is because I know theres been a lot of questions and thoughts on inflation and what's taking place.
Right now we have two areas in particular of polyethylene and polypropylene and they get a lot of focus and attention.
It's a very small percentage of what we buy.
And we could probably give it even more robust the answer on raw materials of somebody wants it but I'd just tell you right now we're not a we don't have something and that our plan for a major inflationary price increase because we're not seeing that yet, but we would handle that appropriately. If we did so I guess the way to think about that 8% is thats real on.
Buying demand growth, excluding the FX Delta I just described.
Great and just a quick question on your Master batches deal given how will it work for you and your execution of was quite good.
Why wouldn't you look at another deal similar to that.
Given the low rates and take advantage of that and.
And can you talk about the pipeline and what your thinking is there. Thank you.
Yeah, I mean look we would love to do another deal like the us right and.
And I'd say look the Clariant deal was a number of years and the making.
From the first time, we ever started talking about it too when we earnestly started talking about it to when we finally got of done and July of 2020. So.
Unfortunately, these things do take time I'd.
I would tell you there's a number of things that we are looking at that we are excited about.
What I love is that look when you look at the cash flow we generate of this last year. We're projecting for 2021, we're going to get something done if and when we can and we think it's a good fit it's just a matter of having all of that lineup. So that we can so that's the plan. Thank.
Thank you so much.
Thank you and our next question comes from the line of Mike Harrison with Seaport Global.
Securities.
Hey, good morning could you.
You hear me okay.
Got it.
Great one of the.
And have come back to this raw material question, maybe can you take a step back and.
And discuss some of the changes that have occurred in the raw materials slate now that your color business has doubled in size you mentioned <unk> and <unk> are smaller.
Components of that than people might think.
Presumably pigments and have increased and in terms of your spend so.
Talk about that and maybe what your outlook is for for inflation and some of those pigments.
Based raw materials.
Hi, Mike This is Jamie and it's a great observation so about half of our raws now are non hydrocarbon carbon base, primarily with the C. AI.
On a portion of our business, which is the pigments and <unk> and performance out of additives, they've been very stable through 2020, and and our outlook is for 2021.
For perspective going back the polyethylene and polypropylene that Bob mentioned earlier, there's only represent 15% of on raw materials and even so it takes a little bit more effort to dig into it a little bit more because of the market indices don't really represent exactly.
We purchased for our businesses in particular, we buy plastic extrusion formulations and we also purchased.
And those polymers and recycled content as well so we don't see the magnitude of inflation that you would normally see and just by looking at the indices.
Lastly, a lot of the headlines today than the North America.
The region and in fact, if you talk about polyethylene and polypropylene Europe was down in Q4, and so if you did a walk of what happened last quarter, we actually saw a raw material benefit and while we do see some of the market indices moving up for 2021.
Like Bob said, we don't think the magnitude of that large and where there is some pockets where that might be the case, we definitely have the ability to raise price to be able to push that through.
Alright, that's very helpful. Thanks, and then Bob maybe can you talk a little bit about the cyclical businesses.
It seems like you're expecting a recovery to continue into 2021, maybe comment on what youre seeing and in terms of monthly trends and some of those businesses and some thoughts on where customer inventory levels are and any potential for.
The restocking cycle in 2021.
Sure just as of.
As a reminder, you mentioned the cyclical so I'll just throw out maybe transportation, which is about 8% of sales building and construction is even less.
And those things of all seem to have trended positively and the last few months as you know there is some sort of headline let's say concerns about the ability to continue to do so because of chip shortages and things like that so it's embedded in the automotive industry.
But anyway I think there is continued improvement and these cyclical spaces and we're seeing that right now.
Was the second part of your question I think was related to customer inventories and I'd tell you.
It's a really challenging time right now because a lot of raw materials are actually in short supply and I think customers are feeling that we certainly are.
And I think that I don't think anybody is stockpiling stuff right now are feeling like they've got enough to be content.
And some cases people are trying to get whatever they can for those things that are in short supply because demand continues to be very strong. So I don't think we're sitting on a lot of inventory right now I don't think our customers are either.
And hopefully that's a good thing for demand and here for the first part of the year.
Alright, thanks very much.
And.
Thank you and our next question comes from the line of Ben Keller with Eric. Your line is open. Please go ahead.
Hey, guys.
Kevin.
So hey, Bob.
You gave a point guidance for 'twenty and 'twenty one.
I don't think you've ever done a new on the stock and just like eight or nine years.
Yes.
Talked about a visit.
Visibility a little bit.
And then two like if we go back to your last analyst day.
And then the one before that.
The storage of.
Opex.
Guidance and that was you talked about that before as a driver of the stock.
Or the company and what you are focused on and then go out there and what's the you talked more about ROIC.
And so could you talk about that.
Visibility into your guide and then what metrics you are or looking for as you go forward that we shouldn't be looking for.
Goldberg and planning on the Golar for whatever it was.
Right and there's a lot of stuff and <unk> been.
And so.
And when they see all I can.
Take these here and the order I can remember of so.
Well starting point with the $2 40.
I mean look some people prefer to give a range others may prefer to just give a point estimate that they kind of view is our best estimate.
Candidly either one of those is based on assumptions and so on certain.
Certain scenarios as you put it into the forecast I've tried to convey.
And one or two of those scenarios already in the sense of kind of how we look at Q4 for this year maybe.
Maybe margins and looking at those things kind of conservatively so.
And philosophically other people kind of just have their feelings about whether or not the range is helpful. Because sometimes it.
So as you exactly know the lower and and the higher end and Thats not always true either so hey look this is our best estimate I think it's a really good.
Way to start the year and I think.
Great point estimate for us to think about for the year.
With respect to going back to some of those previous Investor days I think look ROIC is always going to be important right. The system measure of how well we're doing against our investment dollars and.
I think you were harkening back to and Investor day, where even way before that right, which was all about margins and.
And there is a really good slide from that that we really should resurrect because I think that margin growth is going to be and important part of our story going forward.
As it was then I tried to make that comment on the call today, which is that for those of you of follow us for a long time and you have.
You'll remember that and I think that's going to be important part of the growth story. So we didn't have a slide on that with respect of margin projections I think as this year goes on and we see how this plays out for this year, though thats worth revisiting and I know Bob asked the similar question about where color can get too so.
Anyway, I feel really good about our trajectory I think we're on a really good path with respect to those things and.
And if it goes on and I think we can put more data around it.
I will jump into it and things I know youre coming to the sustainability conference but.
From a broader perspective now.
Do you guys envision doing.
Robert.
Banlist day, or sort of revisit sort of what youre doing and.
And when would you think buildup.
Sorry, Joe.
Did you say sorry.
John do you guys of all work.
Yeah, Let me clarify the next six months.
And I think we will.
We will give that some consideration Ben and we'll report back to you.
Alright, thanks, guys.
Certainly.
Thank you and our next question comes from the line of Colin Rusch with Oppenheimer. Your line is open. Please go ahead.
Thanks, So much guys can you speak to any discussions that you're having around light weighting and the material on the replacement outside of outdoor performance at this point.
And particularly as it gets into the auto sector or some sort of.
Areas, where you guys have some meaningful opportunities for land.
Yeah, I mean look it's still I mean right of the top of the list for transportation of applications. I mean, I mentioned in response to an earlier.
And that that's not as big of a part of our portfolio as it once was but look it's still <unk>.
The 9% of our sales and it matters, so I'd say applications and transportation are still.
Really important in that regard and as you know look we do lots and lots of small things. So we wouldn't be pointing to something that's massive and scale in terms of application examples but the ones that we are doing in the space are very much focused on light weighting and the matter.
And what was I thought interesting about this last year was that in some respects it kind of felt like maybe innovation got put into the parking lot, but in other respects it seem like the ability to communicate more frequently with customers by Webex, maybe actually put some things back on the table that werent before so.
And I was actually really encouraged and sort of net net on the year with respect of how much customers are still thinking about light weighting and thinking about sustainable solutions and.
And Kelly of light weighting and packaging is a big deal I think you mentioned the outdoor performance and we obviously talk about that a lot, but light weighting for packaging is has raised the top two.
Okay. That's super helpful and I think you kind of of our leading into my next question.
We're seeing an increasing number of companies make commitments around reaching net zero by 2040, and obviously with the robust ESG practices that you guys have it allows you of a certain amount of transparency not just around.
The environmental issues, but but the entire business where are you seeing and in terms of customer engagement on trying to work towards some of those net zero calls with you guys as a supplier of it seems like.
Some of that purchasing power is going to start dictating the operational terms for different customers and just curious how mature of that is and kind of where you're at with that sort of Fisher.
Yes.
I think it's mature I think that there's a lot of of customer energy excitement and support for discussion around sustainability initiatives like never before.
I mean, it used to be something that was kind of and interesting side conversation, but it didn't get a lot of traction and less of customer thought of is somehow going to be cheaper.
And that's just not the case anymore and I'll tell you.
We're having some really robust conversations with customers and you talk about sustainability and things we can help them do and help ourselves, it's front and center with respect to new product development and design and what's going on right now I mean, it really is particularly and the food and beverage packaging and play space.
Thanks, so much guys.
Sure.
Thank you and our next question comes from the line of Laurence Alexander with Jefferies. Your line is open. Please go ahead.
Hi, guys.
Mark how are you.
David.
So just getting back to the revenue synergies I know you've mentioned that the first priority is identifying them.
Just wondering how long the runway and from there I mean.
After the identified.
Is there a long sales cycle, because it takes a year or two to kind of really make traction with.
The generating additional revenue from cross selling.
Well look theres already some that are identified I think it's the spectrum of both identification and then sales cycle timing so.
Certain things look we're just talking about bringing clarient legacy poly one together and so I'll just focus on color for the time being.
Some of these things are food and beverage packaging related some are health care that can be long cycle stuff right, particularly with respect to <unk>.
<unk> and I do think additives is a big area of opportunity. So some of this longer cycle.
Some of it I think could be quick wins that we get as early as the end of this year on by bringing the businesses together.
I just want to continue to reiterate just how important it is to have business as usual for a period of time as.
As we bring customers together as we align our sales and commercial organizations I think the message is really important and.
And then lastly.
Maybe a follow on to the last.
The question and answer session on sustainable solutions, I think those things actually would historically have a longer cycle time, but customers are going to make them happen faster. So those kind of things could happen again as soon as the end of this year beginning of next year.
Thank you for the color there and then just wondering the question.
Some of the other companies of mentioned that Theres. Some logistical issues recently, just due to the pandemic.
The reason cost I was wondering if you guys are seeing something similar.
Hum logistical issues I mean, if you mean with respect to like raw material shortages.
That is certainly something we've seen and a variety of different places.
It has caused some disruptions and and.
And a few of our a few of our businesses, but that's it look with respect to freight freight costs are going up things are getting tight that makes things more challenging at times.
And nothing else that's on our radar screen unless I misunderstood your question.
No I was referring back to the freight and transportation costs.
But you did you did answer it.
Okay. Thank you.
And.
Thank you and our next question comes from the line of.
The deep handy with Unfilled security. Your line is open. Please go ahead.
Thanks, a lot.
Cool.
Very good growth and the Clarient legacy business last year, 13% despite.
Hello can you hear me, yes, we can hear you of period.
We could hear you.
Jay your line might be on mute Hello.
Hello, and we can hear you. We can hear you hi can you hear me.
Yes.
Hello.
Hello.
Yes, hi, yes.
I was just going to start with the with the Clarion.
The legacy business.
You saw 13% growth and EBITDA. So if you can give us some color on organic growth and sort of what was driving the given the fact that you only had.
5 million synergies last year.
And then sort of more longer term question around this business is if I sort of throw in your synergy target in the.
Do you think fundamentally this business actually.
If you guys were running it and go through all of the sort of right growth elements to it would be.
And your top tier in terms of margin.
That's the first question. The second question is a sort.
Sort of around your of health care business actually and maybe together of.
And then Florian.
Do you have any opportunity with regards to catheters and vials.
The <unk> is especially and the vaccination drive as the world.
Sort of scramble.
And for glass vials.
That's my second question and then finally I know you probably want to do this on a step by step manner, but.
And I look through your synergy targets for a flurry and you've upgraded the sourcing element.
But the do you think there is still quite a lot of scope for you too.
The combined are.
The production network between the two between the two companies.
And now that it is one company and really and therefore, there is there could be more scope for synergy upgrades going forward.
Thanks, a lot.
Absolutely a lot of stuff there let me.
So number one is on the legacy Clarient performance for 2020 and.
And let me look recall that this is a business that went through the pandemic just like the rest of our so when you look at 13% EBITDA growth on the surface of of someone may or you have to put the year on context of really appreciate that and I go back to the second quarter of the year when EBITDA was flat, but flat was awesome and <unk>.
Q2, right, so and that really was a testament to their presence in health care and food and beverage packaging is really two key end markets.
Which is again I think of growth driver for the full year results.
And that is look organic with the with the exception of how you call organic and the meaning that yes, we did achieve $5 million of synergies. This year of portion of that does go to the legacy Clarient business and we're projecting 35 coming up and the next year.
The next question was around health care, and specifically applications around catheters and vials.
We do have a connection into minimally invasive catheters for certain types of procedures and we also do have a connection of pretty significant one into files and test kits. So when Jamie was presenting the bridge scheduled today as you said Hey look there are some things that we did last.
And here that may not repeat.
For example, and 95 mass you probably won't see the same level of demand for those in 'twenty. One as you did and 'twenty. However, some of that could be offset by what we're seeing with testing kits and so on so that's how we've tried to actually present that healthcare dynamic. This year and then lastly on the synergy targets I do think there's more opportunity from our opera.
<unk> perspective, some of these things are a little bit longer term theres one in particular that we actually really.
Like and this kind of and development right now, but I think given the time frame.
And that that will take place. We're just not sure if that can happen inside the three year time window. So for now we're just trying to really focus on what can we get on from a cost perspective inside three years if the.
The other idea is something we can pull forward, we will and we will update our targets accordingly.
Thanks, a lot.
Absolutely. Thank you Judy.
Thank you and our next question comes from the line of Vincent Anderson with Stifel. Your line is open. Please go ahead.
Yes, thanks, good morning, everyone.
Bob maybe a tough number to pin down, but when you think about your 6% constant currency growth given your confidence how much of that would you be able to attributes and maybe specific applications of our business wins that you have a really good line of sight on versus maybe your assumptions on the broader cycle.
Yeah.
Again, I got to kind of split the year end of two halves.
Say look right now I feel like we got a really good read on the first quarter and we're off to a strong start and I think these estimates are conservative in that regard.
It is challenging of really sort of project is how does this play out and the second half and in particular this fourth quarter, which as you know was really strong for us in 'twenty and 'twenty and how that manifests itself. So it's always challenging for us to try to put granular assumptions out there on these spin.
<unk> applications, but.
Right now with what we're seeing on the first half of the year. If you go and look at the bridge schedule, Jamie presented we feel good about those categories and the applications that are inside of those we've got pretty good line of sight too.
Excellent. Thanks.
And then maybe can we hit reset really quick on composites, you said, we're still holding around $200 million of sales, obviously, the 2020 being tough, but maybe just revisiting kind of a rough breakdown between the different businesses that are in there. How many of those are still on the process of being commercialized and maybe of.
Bit of a drag on margins today, and then just finally, what you're excited to be bringing to the market and now that we're kind of moving back to a more normal demand environment.
Yes look.
There is about.
I'd say $60 million of that to let's say 80.
And it's really directly related to.
Five G and fiber optic infrastructure and it didn't come up really at all today I think is a good growth for us that we've put into this composites bucket.
And then of course, we've got composites that are directly going into the outdoor space, which was probably another 40 to 60 with the balance being and industrial applications, and some presence and oil and gas oil and gas exploration.
I'm not sure if that works out perfectly to being a third of third a third but hopefully that helps give you some better.
Perspective on the breakdown by end market there isn't one of those I mean, they're all really good.
And very profitable by end market looking at it that way, it's kind of by technology, where you see some differences and if I look at some of the leading edge thermal plasma the composite technology. That's the place where we still got a significant amount of investment still.
And lot of customer acceptance to come to get some new products introduced.
But a lot of opportunity for the future. So theres some mix and margin there the bite technology, but not really by end market.
That's helpful. Thank you.
Absolutely.
Thank you and this does conclude today's question and answer session and I would like to turn the conference back over to Bob Patterson for any further remarks.
Alright, well thanks, everyone for joining us on the call we look forward to.
Hopefully seeing many of you in the mall.
And maybe not in person, but on webex or otherwise on some upcoming conferences and.
Along the way and of course updating you on our first quarter results. When we have those in hand and of April beginning of May take care Bye for now.
Ladies and gentlemen, this does conclude today's program you may all disconnect everyone have a great day.
[music].
And.
And then.
And then.
And.
[music] revenue.
And the.
Moving on.
And.
And.