Q4 2023 Avient Corp Earnings Call

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Okay.

Operator: Good morning, ladies and gentlemen, and welcome to Avient Corporation's webcast to discuss the company's fourth quarter and full year 2023 results. My name is Norma, and I'll be your operator for today. At this time, all participants are in a listen-only mode.

Good morning, ladies and gentlemen, and welcome to AVX Corporation webcast to discuss the company's fourth quarter and full year 2023 results. My name is norm and I'll 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 companys prepared remarks.

Operator: We will have a question and answer session following the company's prepared remarks. As a reminder, this conference is being recorded for replay purposes. I would now like to turn the call over to Joe DeSalvo, Vice President, Treasurer, and Investor Relations. Thank you, and good morning to everyone joining us on the call today. Before beginning, I'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. These four low-key statements will give current expectations or forecasts of future events and are not guarantees of future performance. They are 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 foregoing statement.

As a reminder, this conference is being recorded for replay purposes, I would now like to turn the call over to Joe to Salvo, Vice President Treasurer and Investor Relations. Please proceed.

Thank you and good morning to everyone joining us on the call today.

Before beginning I'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 there.

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.

Joe DeSalvo: Please refer to the investor presentation for this webcast for a number of factors that could cause actual results to differ. During the discussion today, the company will use both GAAP and non-GAAP financial measures. Please refer to the presentation posted on the Avient website, where the company describes the non-GAAP measures and provides a reconciliation for historical non-GAAP financial measures to their most directly comparable GAAP financial measures.

Please refer to the Investor presentation for this webcast for a number of factors that could cause actual results to differ.

During the discussion today, the company will use both GAAP and non-GAAP financial measures.

Please refer to the presentation posted on the avian website, where the company describes the non-GAAP measures and provides a reconciliation of historical non-GAAP financial measures to their most directly comparable GAAP financial measures.

Joe DeSalvo: Joining me today is our President and Chief Executive Officer, Dr. Ashish Kanpur, and Senior Vice President and Chief Financial Officer, Jamie Beggs. We also have Bob Patterson, who is serving in a transition advisory role with the company. Bob will briefly make some opening remarks before we start the discussion on performance. I will now hand the call over to Bob to begin. Thanks, Joe. And good morning, everyone.

Joining me today is our president and Chief Executive Officer after Ashish comfort.

And senior Vice President and Chief Financial Officer, Jamie bags.

We also have Bob Patterson, who's serving any transition advisory role with the company.

Bob will briefly make some opening remarks before we start the discussion our performance.

I will now hand, the call over to Bob to begin.

Thanks, Joe and good morning, everyone.

Robert M. Patterson: Last November, I announced my plans to retire and pursue my lifelong passion for teaching and spending more time doing that at the University of Michigan, my alma mater. Today, I have the privilege of introducing Dr. Ashish Kampur, who succeeds me as Avient's new president and chief executive officer. Ashish took over on December 1st and brings a fresh perspective to our specialty portfolio that has undergone a tremendous transformation over the past. Ashish joined us from 3M, where he spent 28 years. A chemical engineer by education and trade, he began his career there and rose to become chief technology officer of the company.

Last November I announced my plans to retire and pursue my lifelong passion for teaching and spending more time doing that at the University of Michigan My Alma mater.

Today I have the privilege of introducing Doctor Ashish copper, who succeeds me as Avn's, New President and Chief Executive Officer.

Ashish took over on December one and brings a fresh perspective to our specialty portfolio that has undergone a tremendous transformation over the past decade.

Ashish joined us from three am where he spent 28 years.

A chemical engineer by education and trade. He began his career there and rose to become Chief Technology Officer of the company.

Robert M. Patterson: Over those nearly three decades, he distinguished himself as a brilliant scientist, innovator, and ultimately a proven business leader and operator. His last role at 3M was Group President of Transportation and Electronics, a $9 billion project. It's a business he took into high growth and markets with new technologies and applications, which is exactly where Avient is focused. I have been with the company for almost 16 years in total, and nearly 10 as CEO. During that time, we have upgraded our portfolio by divesting commodity businesses and reinvesting the proceeds in two transformational and 17 bolt-on acquisitions. We are the number one leading color formulator in the world. We have built a composites portfolio from scratch, which includes Dyneema, the world's strongest fiber.

Over those nearly three decades, he distinguished himself as a brilliant scientist innovator and ultimately a proven business leader and operator.

His last role at three Am was group president of transportation, and electronics and $9 billion business.

It's a business he took into high growth end markets with new technologies and applications.

Which is exactly where AVX is focus.

I have been with the company almost 16 years in total and nearly 10 as CEO.

During that time, we have upgraded our portfolio by divesting commodity businesses.

Reinvesting the proceeds into transformational in 17 bolt on acquisitions.

We are the number one leading color formulate or in a world.

We have built our composites portfolio from scratch, which includes dynamic the world's strongest flavor.

Robert M. Patterson: We've completely transformed where IVA does business, generated from, and now have 100% of our businesses dedicated to formulating specialty. I look back on my time with the company with a lot of pride and appreciation for what we accomplished. The Transformed Portfolio is a perfect springboard for Ashish to elevate Avient to the next level of performance. I'm confident you will drive profitable growth and create long-term value for our shareholders. His background and experiences are perfect for the next era in Avian. To our associates, shareholders, and board of directors, I thank you for your support and trust during my time. I now leave you in very capable hands with Ashish, Jamie, and the 9,500 associates at Avient. I've had the pleasure of working with you. Thank you, Bob, and congratulations on your retirement. Transformation of any kind is difficult.

We have completely transformed our EBITDA is generated from and now have 100% of our businesses dedicated to formulating specialty solutions.

I look back on my time with the company with a lot of pride and appreciation for what we accomplished.

The transformed portfolio has a perfect springboard for ushers to elevate AVN to the next level of performance.

I am confident you will drive profitable growth.

And create long term value for our shareholders as background and experiences are perfect for the next era and Avm's journey.

To our associates shareholders and board of Directors I. Thank you for your support and trust.

My tenure.

I now leave you in very capable hands with Ashish Jamie.

<unk> 9500 associates at AVN I've had the pleasure of working with.

Thank you Bob and congratulations on your retirement.

Ransford mention of any kind of difficult.

Ashish Kanpur: Difficult for an organization to go through, but even more challenging for the person leading it. These achievements of transforming Avient to a 100% Specialty Portfolio require commitment, talent, and certainly leadership. Bob has provided all three. It is a retirement well-earned, and I wish him the very best in health and happiness.

For an organization to go through but.

But even more challenging for the person leading it.

These achievements of transforming avian to 100% specialty portfolio.

<unk> commitment.

And certainly leadership.

Bob has provided all three.

It is a retirement well on and I wish him the very best in health and happiness.

Ashish Kanpur: In the first two months I have been with Avient, I have had a chance to meet with several stakeholders, including investors, customers, and, of course, our talented associates. A common question I get is, why did I join Avient? While there are many factors to consider when changing roles, it ultimately boils down to the tremendous potential I see to profitably grow the company. Doing so requires a culture of strong customer focus and a relevant portfolio of technologies, both of which Avient possesses. Leveraging these, along with amplifying innovation in high-growth market segments all around secular trends, will help us grow profitably in a sustained manner. This will also require some bold thinking, prioritization, and acting with courage, which are all leadership traits I have personally developed and honed over the years, and that I will be purposeful about instilling in my team as well.

In the first two months I have been with AVN I have.

Had a chance to meet with several stakeholders.

<unk> investors customers and of course, our talented associates.

A common question I get is why did I join AVN.

While there are many factors to consider when tendering rules.

Ultimately boil down to the tremendous potential IC to profitably grow the company.

Doing so requires a culture of strong customer focus and a relevant portfolio of technologies, both of which avian possesses.

Leveraging these along with amplifying innovation and high growth market segments, all around secular trends will help us grow profitably in a sustained manner.

This will also require some bold thinking.

Characterization and acting with courage, which are all leadership traits I have personally developed and honed over the years.

And that I will be purposeful to instill and my teams as well.

Ashish Kanpur: Over the last several years, the company has highlighted its four key growth drivers of sustainable solutions, composites, healthcare, and emerging regions. I see these as secular growth areas, and they currently make up 60% of our business. The team did a great job laying out the market dynamics underlying sustainable solutions, as well as showcasing many of our differentiated formulations at last September's Investor Day. I'm also impressed with the trajectory of our composites portfolio as it continues to displace wood, glass, or metal in an increasing number of applications. And while a smaller portion of our portfolio currently, the healthcare business is sticky, profitable, and an area that will continue to grow steadily as our population ages and people trend towards more self- Now, turning to our earnings announcement this morning, I am extremely pleased to finish the year with fourth-quarter adjusted EPS of 52 cents, reflecting an increase of 24% over the prior-year quarter.

Over the last several years the company has highlighted it's four key growth drivers of sustainable solutions composites healthcare in emerging regions.

ICD is a secular growth areas and they currently make up 60% of our business.

The team did a great job laying out the market dynamics underlying sustainable solutions as well as showcasing many of our differentiated formulations at last September Investor Day.

I'm also impressed with the trajectory of our composites portfolio as it continues to displace board glass or metal and an increasing number of applications.

And while a smaller portion of our portfolio currently the healthcare business is sticky profitable and an area that we'll continue to grow steadily as our population ages and people trend towards more self care.

Now turning to our earnings announcement this morning.

Im extremely pleased to finish the year with fourth quarter adjusted EPS of <unk> 52.

Reflecting an increase of 24% over the prior year quarter.

Ashish Kanpur: Jamie will provide more details and some guidance for 2024 in a moment, but first, I'm going to share a few observations on the demand trends we are seeing across the end markets and the major regions of the world that we serve. As we noted in our earnings release, our two largest end markets of packaging and consumer benefited from the slowed pace of destocking during the fourth quarter. They make up a little more than 40% of our sales, and while still down year over year, they are much less so than in the previous quarter. It is worth noting that both packaging and consumer sales were down sequentially, only 4% and 3%, respectively, from the third quarter to the fourth, despite the typical fourth quarter seasonality we experience in our business.

Jamie will provide more details on some guidance for 2024 in a moment.

But first I'm going to share a few observations on the demand trends, we are seeing across the end markets and the major regions of the world that we serve.

Okay.

As we noted in our earnings release, our two largest end markets of packaging and consumer benefited from the slower pace of Destocking during the fourth quarter.

The makeup of revenue more than 40% of our sales and while still down year over year. They are much less so than in previous quarters.

It is worth noting that both packaging and consumer sales were down sequentially, only 4% than 3% respectively from the third quarter to the fourth despite the fact typical fourth quarter seasonality, we experienced in our business.

Ashish Kanpur: This, along with the order trends to start the year and insights from our customers, gives us confidence that destocking has largely come to an end in these areas and that orders are more of a reflection of underlying demand. We discussed the healthcare end market in detail in our last quarterly earnings call. While fourth-quarter sales in healthcare were down 9% year over year, the pace of destocking has also started to slow.

This along with the order trends to start the year and insights from our customers gives us confidence that destocking has largely come to an end in these areas and that orders are more of a reflection of underlying demand.

We discussed the healthcare end market and detailed in our last quarterly earnings call.

While fourth quarter sales in healthcare were down 9% year over year. The pace of Destocking has also started to slow.

Ashish Kanpur: Q4 sales were up sequentially 3% from Q3. Fundamentally, the underlying demand from consumers for healthcare applications remains steady. Examples include the increased use of self-injection pens for drug delivery, continuous glucose monitors to manage diabetes, as well as catheters and tubings used in surgery.

Q4 sales were up sequentially, 3% from Q3.

Mentally the underlying demand from consumers for healthcare applications remained steady.

Examples include the increased use of self injection pens for drug delivery continuous glucose monitors to manage diabetes as well as catheters and tubing used in surgeries.

Ashish Kanpur: And while some of our healthcare customers continue to manage their inventory levels to start the year, we expect to see improvement in demand as we progress through 2024. However, in industries which are sensitive to interest rates and are more capital intensive, such as building and construction and industrial, we do see continued softness, both from destocking and overall demand. There are new business gains in composite applications replacing conventional building materials, which should provide some offsets to the industrial and building and construction end markets. Telecommunications was the weakest end market for us in the fourth quarter, and we expect softness to continue in the first half of 2024. Rising interest rates and destocking have definitely impacted demand here, as has the delayed timing of projects flowing from the BEED program. Jamie will cover more details on this topic when we discuss SEMs. Rounding out the end markets, sales and defense applications continue to be strong as demand remains high in light of continued geopolitical tensions and recent conflicts overseas. The primary growth is in personal protection, where Dyneema plays a significant role, protecting soldiers with ballistic vests and helmets.

And while some of our health care customers continue to manage their inventory levels to start the year.

We expect to see improvement in demand as we progress through 2024.

And industries, which are sensitive to interest rates and are more capital intensive such as building and construction and industrial we do see continued softness both from Destocking in overall demand.

There are new business gains and composite applications, replacing conventional building materials, which should provide some offsets to the industrial and building and construction end markets.

Telecommunications was the weakest end market for us in the fourth quarter and we expect softness to continue in the first half of 'twenty 'twenty four.

Rising interest rates and Destocking have definitely impacted demand here as has the delayed timing of projects flowing from the <unk> program.

Jamie will cover more details on this topic when we discuss Scm's performance.

Rounding out the end markets sales in defense applications continued to be strong as demand remains high in light of continued geopolitical tensions and recent conflicts overseas.

The primary growth is in personal protection, where <unk> plays a significant role.

Protecting soldiers with ballistics, Wes and helmets.

Ashish Kanpur: Moving on to the regional observations, each of the regions has different fundamentals that have resulted in varying performance in 2023 and will continue to influence how we look ahead to 2024. Starting with our largest region, we expect the U.S. and Canada to continue to improve as the year progresses, given consumer sentiment appears to be resilient despite higher interest rates. This region does have slightly more exposure to health care, which implies potentially sluggish growth in the near term but should ultimately drive greater growth as destocking ends. Telecommunications will also be a significant tailwind once restocking ends and when federal funding is fully allocated to states to expand the installation of fiber-optic cable under the BEAT program. In EMEA, demand remains tapered with consumers staying cautious due to prolonged geopolitical issues, higher interest rates, and the lack of government stimulus or infrastructure spending compared to other regions.

Moving onto the regional observations each of the regions have different fundamentals that have resulted in varying performance in 2023, and we will continue to influence how we look ahead to 2024.

Starting with our largest region, we expect the U S and Canada to continue to improve as the year progresses, given consumer sentiment appears to be resilient despite higher interest rates.

This region does have slightly more exposure to health care, which implies potentially sluggish growth in the near term, but should ultimately drive greater growth and Destocking ends.

Telecommunications will also be a significant tailwind once destocking ends and when the federal funding is fully allocated to states to expand the installation of fiber optic cable under the <unk> program.

In EMEA <unk>.

<unk> remains tapered with consumers staying cautious due to prolonged geopolitical issues.

Interest rates and the lack of government stimulus or infrastructure spending compared to other regions.

Ashish Kanpur: However, defense is a bright spot, and restocking appears to have ended for packaging, which is the largest end market in the region. In Asia, our outlook remains cautious due to uncertainties in the Chinese economy, and it remains to be seen how the new government stimulus package will translate to spurring the economy in 2024. While Latin America only represents 5% of our business, we do view it as an important region, not only to tap into local market opportunities but also as a region where our global customers look towards shifting product. Our sales were up year over year in Latin America in the fourth quarter in our largest end market packaging. And we expect that momentum to continue into 2020. With that, I will now hand it off to Jamie, who will discuss our fourth-quarter results, as well as our initial outlook for 2020. Thank you, Ashish.

However, defense is a bright spot and Destocking appears to have ended for packaging, which is the largest end market in the region.

In Asia, our outlook remains cautious due to uncertainties in the China economy, and it remains to be seen how the new government stimulus package will translate to sparing the economy in 2024.

While Latin America, only represents 5% of our business, we do view it as an important region not only to tap into local market opportunities, but also as a region, where our global customers look towards shifting production.

Our sales were up year over year in Latin America in the fourth quarter in our largest end market packaging.

And we expect that momentum to continue into 2024.

With that I will now hand, it off to Jamie who will discuss our fourth quarter results as well as our initial outlook for 2024.

Jamie Beggs: Your overview provides good context to now dive deeper into our results. As Ashish mentioned earlier, we delivered adjusted EPS of $0.52, exceeding our guidance of $0.47. This was driven by a slight beat in sales and favorable net interest expense. Fourth quarter adjusted EBITDA margins of 15.9% were also slightly ahead of our guidance and reflected a 240 basis point improvement versus the prior year. This margin expansion was driven by favorable mix, deflating input costs, and prudent cost management. Favorable mix came from improving demand and packaging in consumer end markets, as well as certain applications in our composites platform, such as defense. Regionally, Europe was a key contributor to the margin expansion and drove the year-over-year earnings growth in the quarter. Looking at performance versus the prior year's fourth quarter, sales were down 9%, mostly due to weaker demand with some offset in price and mix and a marginal benefit from FX.

Thank you Ashish Youre overview provides good context to now dive deeper into our results.

Ashish mentioned earlier, we delivered adjusted EPS of <unk> 52.

Exceeding our guidance of 47.

This was driven by a slight beat in sales and favorable net interest expense.

Fourth quarter adjusted EBITDA margins of 15, 9% was also slightly ahead of our guidance and reflects a 240 basis point improvement versus the prior year.

This margin expansion was driven by favorable mix deflating input costs and prudent cost management.

Favorable mix came from improving demand in packaging and consumer end markets as well as certain applications in our composites platform such as defense.

Regionally Europe was a key contributor to the margin expansion and drove the year over year earnings growth in the quarter.

Looking at performance versus the prior year fourth quarter sales were down 9%, mostly due to weaker demand with some offset in price and mix and a marginal benefit from FX.

Jamie Beggs: Ultimately, our ability to price effectively, capture deflation, and manage costs allowed us to grow EBITDA by 7% and adjusted EPS by 24%. From a segment perspective, color, additives, and inks grew EBITDA by 20% in the quarter, driven by earnings improvement in Europe. As discussed before, many of the remaining cost synergies related to the clearing acquisition were to come from Europe as we rationalized operations and adjusted staffing levels. These cost reductions help the bottom line as well as the impact of raw material deflation. Culler also benefited from improving demand in consumer and packaging markets, which had a favorable impact on mix for the segment. The Specialty Engineered Materials segment was down $6 million in EBITDA from the prior year quarter, and $5 million of this reduction is due to exposure and the telecommunications and electronics market, where demand was significantly down.

Ultimately our ability to price effectively capture deflation and manage costs allowed us to grow EBITDA by 7% and adjusted EPS by 24%.

From a segment perspective color additives and inks grew EBITDA, 20% in the quarter driven by the earnings improvement in Europe as we discussed before many of the remaining cost synergies related to the clearing acquisition were to come from Europe, as we rationalize operations and adjusted staffing level.

These cost reductions helped the bottom line as well as the impact of raw material deflation.

Color also benefited from improving demand in consumer and packaging market, which has a favorable impact on mix for the segment.

The specialty engineered materials segment was down $6 million in EBITDA from the prior year quarter and $5 million of this reduction is due to exposure in the telecommunications end market, where demand was significantly down.

Specifically this impacted our fiber line business that provides composite applications used in fiber optic cable.

Jamie Beggs: Specifically, this impacted our FiberLine business that provides composite applications used in fiber optic cables. This end market has been impacted by inventory de-stocking and timing of the funding related to the B program. For those who aren't familiar, BEAD, also known as Broadband Equity Access and Deployment, is the $42 billion program to expand high-speed Internet access by funding infrastructure and adoption programs in the U.S. States submitted plans to the government, and approval is intimate.

This end market has been impacted by inventory destocking and timing of the funding related to the <unk> program.

For those who aren't familiar bead also known as broadband equity access and deployment is the $42 billion program to expand high speed Internet access by funding infrastructure and adoption programs in the U S.

<unk> submitted plans to the government and approval as intimate we.

We anticipate fiber optic cable demand to improve in the second half of 2024 as the states began receiving funds further broadband deployment projects and then become more significant in 2025.

Jamie Beggs: We anticipate fiber optic cable demand to improve in the second half of 2024 as the states begin receiving funds for their broadband deployment projects, and then become more significant in 2025. Similar to color, SEM also benefited from raw material deflation and favorable mix driven by certain composite applications in the building and construction space, as well as in defense. These items, along with cost action, partially offset the reduction in demand.

Similar to color SCM also benefited from raw material deflation and favorable mix driven by certain composite applications in the building and construction space as well as in defense.

These items along with cost actions, partially offset the reduction in demand.

Moving to the fourth quarter EBITDA bridge, we highlight the impact of demand price and mix as well as raw material costs on a year over year basis.

Starting with demand it is down less compared to previous quarters as the pace of Destocking slowed in most end markets.

Also highlighted on this bridge is the impact of pricing and deflation, which more than offset lower demand.

Jamie Beggs: Moving to the fourth quarter EBITDA bridge, we highlight the impact of demand, price, and mix, as well as raw material costs on a year-over-year basis. Starting with demand, it is down less compared to previous quarters as the pace of de-stocking slowed in most end markets. Also highlighted on this bridge is the impact of pricing and deflation, which more than offset lower demand. This is the third consecutive quarter we've seen raw material deflation on a year-by-year basis, and we expect that to continue as we start 2024. Further down, you'll also see the impact of certain cost reduction activities that were initiated at the beginning of 2023, including Targeted European Restructuring and Reduced Discretionary Spend, which provided a $13 million benefit in the quarter. These cost control efforts more than offset wage inflation.

This is the third consecutive quarter, we've seen raw material deflation on a year over year basis, and we expect that to continue as we start 2024.

Further down you also see the impact of certain cost reduction activities that were initiated at the beginning of 2023, including targeted European restructuring and reduced discretionary spend which provided a $13 million benefit in the quarter.

These cost control efforts more than offset wage inflation.

All in all we were able to grow EBITDA, 7%, despite sales being down 9% for the quarter.

Turning to 2024, we're providing guidance today for the first quarter and full year.

We expect Q1 earnings per share of <unk> 68.

Which would reflect an 8% increase over the prior year.

This takes into account the end market and regional trends Ashish commented on earlier.

To reiterate we are seeing improving trends in our largest end markets packaging and consumer and strong demand for defense applications. Balancing. This is the continued destocking in telecommunications and healthcare as well as end markets that are more sensitive to higher interest rates, such as building and construction and transportation.

Jamie Beggs: All in all, we were able to grow EBITDA 7% despite sales being down 9% for the quarter. Turning to 2024, we're providing guidance today for the first quarter and full year. We expect Q1 earnings per share of $0.68, which would reflect an 8% increase over the prior year.

On a full year basis, we anticipate adjusted earnings per share between $2 40.

The $2 65.

And adjusted EBITDA of 505 million to 535 million <unk>.

Jamie Beggs: This takes into account the in-market and regional trends Ashish commented on earlier. To reiterate, we are seeing improving trends in our largest end markets, packaging and consumer, and strong demand for defense applications. Balancing this is the continued stocking in telecommunications and healthcare, as well as in markets that are more sensitive to higher interest rates, such as building and construction and transportation. On a full year basis, we anticipate adjusted earnings per share between $2.40 and $2.65 and adjusted EBITDA of $505 million to $535 million.

We're providing a range to account for different scenarios of how demand could ultimately play out in 2024.

We are optimistic that demand in the U S will strengthen as Destocking comes to an end across all end markets.

We also see growth in emerging regions, such as Southeast Asia, and Latin America, but we are more conservative on our view of China since their growth will be dependent on increased consumer spending and sentiment.

Lastly, Europe's underlying demand is likely to be muted, but we can confidently say destocking is done and we believe sustainable solutions, especially in packaging will help us grow year over year.

Jamie Beggs: We're providing a range to account for different scenarios of how demand could ultimately play out in 2024. We are optimistic that demand in the U.S. will strengthen as the supply shortage comes to an end across all end markets. We also see growth in emerging regions such as Southeast Asia and Latin America, but we are more conservative in our view of China, since its growth will be dependent on increased consumer spending and centralization. Lastly, Europe's underlying demand is likely to be muted, but we can confidently say destocking is done, and we believe sustainable solutions, especially in packaging, will help us grow year over year. We do expect raw material deflation to provide a benefit in the first half of the year. Conversely, in the back half, we have some headwinds associated with an incentive reset. Interest expenses are expected to be between $105 million and $110 million in 2024.

We do expect raw material deflation to provide a benefit in the first half of the year.

Firstly in the back half, we have some headwinds associated with an incentive reset.

Interest expense is expected to be between $105 and $110 million in 2024.

This is slightly lower than 2023 based on the most recent sofer curves and the full year benefit of the $100 million Paydown that we did in August of last year.

In addition, we expect our effective tax rate to be between 23 and 25%.

We are taking a balanced view of 2024, where we're optimistic that demand will improve but also mindful that there are certain economic factors that could influence particular end markets and regions.

Before we open the lines for questions I will now turn the call back over to Ashish for a few closing remarks.

Thank you Jamie I am very pleased that we finished the year better than expected and we view that as positive news as we head into 2024.

It has been a couple of months since I joined AVN.

I have spent much of my time in great discussions with investors customers and employees.

Ashish Kanpur: This is slightly lower than 2023 based on the most recent SOFR curves and the full-year benefit of the $100 million paydown that we did in August of last year. In addition, we expect our effective tax rate to be between 23 and 25 percent. We are taking a balanced view of 2024, where we are optimistic that demand will improve, but also mindful that there are certain economic factors that could influence particular end markets and regions. Before we open the lines for questions, I'll now turn the call back over to Ashish for a few closing remarks. Thank you, Jamie. I'm very pleased that we finished the year better than expected, and we view that as positive news as we head into 2024. It has been a couple of months since I joined Avient.

Digging into our businesses portfolio and the innovation pipeline.

Timing was perfect in that just two weeks ago, we hosted our annual leadership conference.

Where we brought together our top 150 leaders to engage and align on expectations as well as increased collaboration across businesses.

Among the many encouraging takeaways from the conference is that we have a customer focused team that loves to win and is fully committed to doing so going forward.

What's next for me is to continue having robust dialogue with our many stakeholders.

Given the diversity of our customer base and technology portfolio. These conversations are proving to be extremely valuable as we further evolve how and where we serve our current and future customers to profitably grow our business.

Ashish Kanpur: I have spent much of my time in great discussions with investors, customers, and employees, digging into our businesses, portfolio, and the innovation pipeline. Timing was perfect in that, just two weeks ago, we hosted our annual leadership conference, where we brought together our top 150 leaders to engage and align on expectations, as well as increase collaboration across business.

Which leads me to a few top of mind things that will become core themes of our thinking as we evolve our strategy.

First is driving profitable organic topline growth, while expanding our margins on the bottom line.

We have ample opportunities to drive profitable growth by focusing on our customers.

Everything secular trends, combining our technology platforms and winning share in the marketplace.

Ashish Kanpur: What's next for me is to continue having robust dialogue with our many stakeholders. Given the diversity of our customer base and technology portfolio, these conversations are proving to be extremely valuable as we further evolve how and where we serve our current and future customers to profitably grow our business. Which leads me to a few things on my mind that will become core themes of our thinking as we evolve our strategy. First, driving profitable organic top-line growth while expanding our margins on the bottom line. We have ample opportunities to drive profitable growth by focusing on our customers, leveraging secular trends, combining our technology platforms, and winning share in the market.

The second is amplifying innovation.

This is an area of great interest and opportunity as well.

Robust customer driven innovation is near and Dear to my heart.

Just because of my background, but because I've seen firsthand, how it powers business and deliver growth and margin expansion.

We are an innovative company and in our future we will be even more so.

<unk> has a highly competitive and collaborative culture.

Our brand of challenge accepted and embraced the work required to deliver on those challenges.

Our next chapter Avion with challenges in new and exciting ways.

So we will continue to ensure our teams are prepared for future success.

Ashish Kanpur: This is an area of great interest and opportunity as well. Robust customer-driven innovation is near and dear to my heart, not just because of my background, but because I've seen firsthand how it powers business and delivers growth and margin expansion. We are an innovative company, and in the future, we will be even more so. And the third is around continuing to build and invest in our leadership and people. Avient has a highly competitive and collaborative culture.

Again, I will have more to share as our strategy and plans are built out, but let me close with this.

In my short time here, thus far.

As clearly qualified my very first impressions.

That avian is a fundamentally strong company and we have significant growth ahead of us.

That concludes our prepared remarks, Jamie and I are happy to answer any of your questions now.

Thank you.

To ask a question you will need to press star one on your telephone to withdraw your question. Please press star one again.

Ashish Kanpur: We leave our brand of challenge accepted and embrace the work required to deliver on those challenges. Our next chapter at Avient will challenge us in new and exciting ways. So we will continue to ensure that our teams are prepared for future success. Again, I will have more to share as our strategy and plans are built out, but let me close with this. In my short time here thus far, it has clearly solidified my very first impression, that Avient is a fundamentally strong company, and we have significant growth ahead of us. That concludes our prepared remarks. Jamie and I are happy to answer any of your questions. Thank you. To ask a question, you'll need to press star 1-1 on your telephone.

I ask that you. Please limit your questions to one question and one follow up please standby, while we compile the Q&A roster one moment for your first question. Please.

And our first question will come from the line of Michael Sison with Wells Fargo. Your line is now open.

Hey, good morning, Congrats again to you Bob.

On your retirement I guess, my first question's for 'twenty score.

Can you give us a thought the range of sales growth for 24 relative to the guidance.

Kind of the low end bottom end.

And maybe when do you think volumes will sort of inflect and turn positive.

Operator: To withdraw your question, please press star 1-1 again. We ask that you please limit your questions to one question and one follow-up. Please stand by while we compile the Q&A roster. One moment for our first question. And our first question will come from the line of Michael Sisson with Wells Fargo. Your line is now open. Hey, good morning.

Sure Mike Let me just answer that one to start with and then Jamie will add to it.

If you look at.

Probably as you heard in the.

Prepared remarks, we are not providing guidance on the sales per se, but to get to the estimates that we provided on the range you will.

You will see that you will need.

Sales to grow from low single digits to mid single digits as a total range.

Michael Joseph Harrison: Congratulations again to you, Bob, on your time. And I guess my first question for 24 is: Can you give us a thought of the range of sales growth for 24 relative to the guidance, kind of the low end, bottom end, and maybe when you think volumes will sort of inflect and turn positive? Sure, Mike, let me just answer that one to start with, and then Jamie will add to it. Actually, if you look at us probably, as you heard in the prepared remarks, we are not providing guidance on sales per se, but to get to the estimates that we have provided on the range, you will see that you will need sales to grow from low single digits to mid single digits as a total range. With respect to your second part of the question on the inflection point, I think it's a story of the first half and the second half as we see it.

With respect to your second part of the question on infection point I think it's a story of first half second half as we see it I think it is going to be a pretty flattish first half. If you ask me and then most of the demand growth is built into the second part.

So I mean would you like to.

Thats something yes.

Mike I think we.

Tried to describe in the call today.

First half in particular as we take a look at telecom and health care, where we still see discontinued Destocking I think thats the reason why.

We believe that the first half will be slower than the SEC happened in terms of volume recovery that we do see some.

Dynamics within the market in particular, if you look at defense and <unk>.

Telecom potentially coming back in the back half will be stronger overall I'm hopefully that gives you.

Further.

Clarity on how we think sales could evolve for the year.

Ashish Kanpur: I think it's going to be a pretty flattish first half, if you ask me, and then most of the demand growth is built into the second part. So Mike, I think we tried to describe in the call today, you know, the first half, in particular as we take a look at telecom and health care. Will we still? I think that's the reason why we believe that the first half will be slower than the second. We do see some dynamics within the market, in particular if you look at defense and security and back to the back. Further Thank You, Clarity on how we think sales could evolve. I got it.

Got it and then just a quick follow up Ashish when you think about I know its still little bit early but when you think about.

Sort of the longer term earnings power for avian.

Any any initial thoughts were.

EBITDA could get back to in terms of in terms of our firm recovery over the next couple of years.

Yeah, Mike I think a couple of things here one is that in near term as we pointed out our growth driver for growth drive ourselves sustainable solutions composites healthcare and the emerging regions are going to be a catalyst for not just growth because they are in high growth markets growing at five.

<unk> plus end markets, but also for margin expansion because they are accretive to the margins. So I think that will help the EBITDA.

Jamie Beggs: And then just a quick follow-up, Ashish, when you think about, I know it's still a little bit early, but when you think about the longer-term earnings power for Avient, any initial thoughts of where EBITDA could get back to in terms of a firm recovery over the next couple of years? Yeah, Mike. I think a couple of things here. One is that in the near term, as we pointed out, our growth drivers, the growth drivers of sustainable solutions, composites, healthcare, and the emerging regions are going to be a catalysts for not just growth, because they are in high-growth markets growing at 5% plus end markets, but also for margin expansion because they're accretive to the margin. So I think that will help you with the percentages to get better as that pie grows.

Percentages to get better as the pie grows so right now those four growth drivers are 60% of the revenue and so as they continue to grow there becomes a bigger piece of the pie and create more value.

And then on top of that.

In the near term, we can augment that growth further by really notching up our cross selling and collaboration across businesses.

As well as the application at scale, which means really how fast can we replicate our success with one customer at other places.

Scale, especially with some OEM accounts, that's a great opportunity for us.

And then on top of that over time, we can build a new growth vectors.

Which could be coming from markets, which are growing fast. These are the lots happening in the world of technology in the world of regulatory.

Jamie Beggs: So right now, those four growth drivers are 60% of revenue. And so as they continue to grow, they'll become a bigger piece of the pie and create more value. Then on top of that, you know, in the near term, we can augment that growth further by really stepping up cross-selling and collaboration across businesses, as well as replication at scale, which means really how fast can we replicate our success with one customer at other places with scale, especially with some OEM accounts. That's a great opportunity for us. And then, on top of that, over time, we can build new growth vectors, which could be coming from You know, there's a lot happening in the world of technology, in the world of regulations, and so on and so forth. And so those create opportunities for us, because materials will play a big role as those technologies are getting realized.

And.

So and so forth and so those create opportunities for us we call materials can play a big piece as those technologies are getting realized and so for us. It is finding a couple of more growth vectors that will.

Scale, where our technology portfolio is relevant and then we have access to the customer. So I think those combination of those three things that I mentioned.

Give us not just growth, but also good margin expansion, because we will be differentiated.

Got it thank you.

Thank you.

One moment for our next question please.

Our next question comes from the line of Frank Mitsch with Fermium Research. Your line is now open.

Hi, guys, it's aziza on for Frank.

For my first question I was wondering.

Following these recent years the notable portfolio transformation that the company has undergone.

Ashish Kanpur: And so, for us, it is finding a couple of more growth vectors that will scale where our technology portfolio is relevant and where we have access to customers. So I think the combination of those three things that I mentioned would give us not just growth but also good margin expansion because you.

Should we be thinking about capital allocation priorities for this year and maybe even next year.

So thanks for the question.

As you heard in my prepared remarks, our one of our top priorities is to.

Grow topline growth organically profitably.

So I think that sets the starting point for our capital allocation strategy as well, we will invest more in organic part.

Operator: Thank you. Thank you. One moment for our next question. Our next question comes from the line of Frank Mitsch with Firmium Research. Your line is now open. Hi guys, it's Aziza on for Frank.

Then.

Sure.

We have been and as we identify new growth vectors backfill need more resources, not just R&D, but also the commercial as well as operational site, so, but but I think organic growth will be our top priority on the M&A side, we have done a great job with both the portfolio piece that that Bob mentioned in his remarks.

Aziza: For my first question, I was wondering, following these recent years of notable portfolio transformation that the company has undergone, how should we be thinking about capital allocation priorities for this year and maybe even next year? So Aliza, thanks for the question. As you heard in my prepared remarks, one of our top priorities is to grow top-line growth organically and profitably. And so I think that sets the starting point for our capital allocation strategy as well. We will invest more in the organic part than we have been. And as we identify new growth vectors, that will need more resources, not just R&D but also commercial as well as the operational side. But I think organic growth should be our top priority.

And we are still integrating.

The two big acquisitions, you did in the last three years, so in the near term.

I don't see any big acquisitions on the horizon.

But I would not rule out acquisitions per se, we have guidance on M&A and if any acquisitions are done there will be smaller in size and probably bolt on.

And then of course.

Commitment to giving back to shareholders on dividends is there we can we expand.

The dividend as our earnings will grow.

That commitment is there and then finally.

Ashish Kanpur: On the M&A side, we have done a great job with the portfolio piece that Bob mentioned in his remarks, and we are still integrating the two big acquisitions we did in the last three years. So in the near term, I don't see any big acquisitions on the horizon. But I will not rule out acquisitions per se. We have clearance for M&A, and if any acquisitions are done, they will be smaller in size and probably bought on.

We have been paying debt or the last 15 months, we have paid $300 million of debt and.

<unk>.

We.

As our earnings grow and demand comes back we will have flexibility and either paying the debt back or buying back shares. So those are the decisions can be made as relevant.

I think you know this but.

We have a lot of flexibility when it comes to.

Potentially either paying down debt or share repurchases, because we don't have any near term.

Ashish Kanpur: And then, of course, our commitment to giving back to shareholders in dividends is there. We will expand the dividends as our earnings grow. That commitment is there. And then, finally, you know, we have been paying debt over the last 15 months. We have paid $300 million in debt.

Maturities until 2025 as well as we don't have any restrictive debt covenants than.

Can we have a lot of flexibility in our capital structure to be able to pivot as we see opportunities in the marketplace.

Perfect.

Thank you for that and then.

The commentary on the end markets and geographies is helpful thinking of the full year guidance.

Ashish Kanpur: And you know, as our earnings grow and demand comes back, we will have flexibility in either paying the debt back or buying back shares. So those decisions can be made. I have a little lemon.

Was wondering if it would be possible to kind of break down that EBITDA.

505 to $5 35.

Ashish Kanpur: I think you know this, but we have a lot of flexibility and others. Thank you. Thank you. We don't have any...

For someone some of the other underlying assumptions as far as <unk>.

Jamie Beggs: Maturities until 2025, as well as so we have a lot of flexibility in our capacity. Hibbert

Net price benefit cost inflation for the full year, how you guys think about FX and just some of the other underlying.

Ashish Kanpur: Thank you for that. And then, you know, the commentary on the end markets and geographies is helpful in thinking about the full year guidance. I was wondering if it would be possible to kind of break down that, 505 to 535. For someone, some of the other underlying assumptions, you know, as far as net price benefit, cost inflation, just for the full year, how you guys are thinking about FX, and just some of the other underlying bridge items for 2024 EBITDA. So I'll start.

Bridge items for 2020 for EBITDA.

Sure. So I'll start so as either one of the things that has been factored into our guidance I want us to.

To what Ashish mentioned earlier to Mike is probably low to mid single digit top line growth.

First half versus second half dynamics. He explained we do expect raw material deflation in the first half and a little bit of an unknown in the second half depending on how market conditions rollout, but that's probably 20% to $30 million in the first half.

Jamie Beggs: So these are one of the things that have been factored into our guidance. One is, what Mike earlier said was probably low to mid-single digit top line growth, first half versus the second half. We do expect raw material deflation in the first half and a little bit of an unknown in the second half depending on how market conditions roll out, but that's probably true. $1,000,000 in the first half.

And we mentioned this on the call in the back half, we do have some headwinds with regards to incentives being reset so that's something else to consider in the range, but those are the primary factors you mentioned FX theres not going to be a whole lot of FX dynamics I know the euro has strengthened from 'twenty three 'twenty four but we also see.

Some other currencies that have weakened against the us dollars like the Chinese one that's basically going to offset most of that.

Jamie Beggs: And we mentioned this on the call, in the back half, we do have some headwinds with regard to, that so that's something else, But those are the primary factors. You mentioned FX. There's not gonna be a whole lot of FX dynamics. I know the euro has strengthened. Moore. Some other currencies that have weakened against the US dollars, like, Off.

Got it. Thank you so much guys.

Thank you one moment for our next question. Please.

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

Hi, good morning, Congrats on the new role Ashish and congrats on the National title Bob.

Jamie Beggs: Got it. Thank you so much, guys. Thank you. One moment for our next question. Our next question comes from the line of Mike Harrison, Research Partners. Your line is now, Hi, good morning. Congratulations on the new role that she has. Go appetizers! Heidel.

Okay.

Finally, thanks wondering was wondering if we could maybe dig in a little bit more.

The improvements that you've seen in the Destocking trends.

In packaging and consumer.

Ashish Kanpur: Um, I was wondering if we could maybe dig in a little bit more on the improvements that you've seen in the de-stocking trend, in packaging, and consumers. Um, would, would, would you say that the trends have been, It's exactly the same in both of those markets, maybe just a little more color on what you were seeing in Q4 and maybe what order patterns are looking like and what customers are saying so far in Q1. Maybe I'll start, and then Jamie would like to add that she can do that too.

Would you say that the trends have been kind of exactly the same in both of those markets may be just a little more color on what you were seeing in Q4, and maybe what order patterns are looking like and what customers are saying.

So far in Q1.

Yes.

Yes, maybe I'll start on that Jimmy we'd like to add that she can do that.

I think.

Q4 to Q as I mentioned in prepared remarks, right the packaging.

Ashish Kanpur: I, you know, I think... As I mentioned in prepared remarks, packaging and consumer declined slower than what we would see in typical seasonality from Q3. So that was a positive, of course. And then as we are looking into Q1 and how things are shaping up, we are seeing that... those trends are continuing in the right direction. So we feel like we are, we feel pretty good that most of the destocking is over in packaging. With respect to geographies, I think we still see some slowness in the European market for packaging and consumers, although the restocking is over, but the demand side is a little bit slower.

In consumer declined.

Slower than what we would see typical seasonality from Q3 to Q4. So that was a positive of course and then as we are looking into Q1 and how things are shaping up.

We're seeing that.

Those those trends are continuing in the right direction. So.

We feel like.

We are we feel pretty good at that.

Most of the Destocking is over in packaging and consumer markets.

With respect to geographies.

<unk>.

We still see some slowness.

In the in the European market.

In packaging and consumer although the Destocking is lower but the demand side is a little bit slower.

Ashish Kanpur: But the rest of the world, we are seeing underlying demand to... keep moving in the right direction, going forward. I would like to add to Ashisha's comments. The packaging was down 5% on a year-over-year basis, which is a significant improvement from where we have been. As we look forward to Q1, we expect that, Lower Barrier Reef. A consumer was down 12% in the fourth quarter, although we believe de-stocking has come to an end. The demand associated with consumers is really not so much of a restocking, but just lower inventory levels. Lowery

But the rest of the world we are seeing.

Underlying demand too.

Keep moving in the right direction.

Going forward.

So Mike to add on tissue, just comment that packaging was down 5% on a year over year basis.

Which is a significant.

<unk> an improvement from where we had been trending through 2023, and if you look forward into Q1, we expect that to become even lower variance on a year over year basis, our consumer was down 12% in the fourth quarter.

Although we believe Destocking has come to an end.

Do think that the demand associated with consumer is really not that much of a restocking, but just lower inventory levels to manage slower demand and then if we take a look specifically in China, that's where we see some weakness in consumer which is not to be unexpected just because of the sentiment that's in that region.

Jamie Beggs: And then if we take a look specifically at China, that's, All right, that's very helpful. Thank you. And then, Ashish, you're coming from a company with a much larger R&D organization with a lot of great capabilities. I know it's early days, but can you talk a little bit about what you see within the Avient R&D organization that you think they're doing well? And maybe what areas you might look to?

Alright, that's very helpful. Thank you and then Ashish.

Coming from a company with a much larger R&D organization with a lot of great capabilities. I know, it's early days, but can you talk a little bit about what you would see within the <unk> R&D organization.

Think they are doing well.

Ashish Kanpur: Yeah, thank you for the question, and you know, although I come from a big company, I can tell you Avient is pretty strong with processes and R&D capabilities as well. You know, the biggest thing that R&D can do really well is focusing on the customer and starting from there to innovate, and I think that's one thing that Avient does very well. So you know, I'm really impressed with the customer focus this team has. The collection of technology portfolios over time with different acquisitions has given us many building blocks now that we can start putting them together, mixing and matching, and collaborating across businesses to create more value than what we have been doing in the past. That's an opportunity for us. All right, thanks very much.

Maybe what areas you might look to improve.

Yes. Thank you for the question.

Although I come from a big company I can tell you everyone is pretty strong with processes and R&D capabilities as well.

The biggest thing that.

R&D can do really good is focusing on the customer and starting from there to ignore it and I think thats, one thing that everyone gets pretty well.

No.

I'm really impressed with the customer focus of this team has.

The collection of technology portfolios over time with different acquisitions has given us many building blocks now that we can start.

Putting together mixing and matching collaborating across businesses to create more value than what we have been doing in the past that as an opportunity for us going forward.

Alright, thanks very much.

Operator: Thank you. One moment for our next question. Our next question comes from the line of Lawrence Alexander with Jeffries. Your line is now open. Good morning, everyone. It's Dan Rizzo on for Lawrence.

Thank you one moment for our next question. Please.

Yes.

Our next question comes from the line of Laurence Alexander with Jefferies. Your line is now open.

Good morning, everyone. It's Dan Rizzo on for Laurence. Thank you for taking my question.

Dan Rizzo: Thank you for taking my question. So, you mentioned that ROAR 2 requests are deflating in the first half. Is that going to be followed by some price givebacks to your customers? So, you know, we don't see it that way. From our perspective, we see that the team has done a good job maintaining the price pricing discipline, even as things have begun to normalize. So we don't see much impact of the pricing decrease on revenue. If there is anything, it's gonna be very isolated and minimal.

So you mentioned that raw material costs are deflating. The first half is that going to be followed by some some price give backs to your customers.

Okay.

So.

We don't see.

From our perspective, we see that the team has done a good job maintaining the price pricing discipline, even as things have begun to normalize.

So we don't see much impact of pricing decrease on revenue. If there is anything that is going to be very isolated in nature.

Ashish Kanpur: We feel like we create differentiation by bringing value to customers, and that gives us a little bit more sticking power and a competitive advantage versus our competitors. Okay, great. And then as volumes turn positive and potentially accelerate, how should we think about incremental margins in the two different segments? So on the CAI side, you know, the color side, we should expect to see incremental margins just because, you know, we have done a lot of good work there with respect to driving synergies, but also, you know, cost reductions and things like that. So that should translate into, and you are seeing that in the fourth quarter, the results showed how strong the margin was, and the team has done a great job on cost reduction, taking, you know, maintaining prices, and also Margin Expansion.

We feel like we create differentiation.

And by bringing value to the customers and that gives us a little bit more sticking.

Sticking power and competitive advantage versus our competition.

Okay, Great and then as volumes turn positive.

Potentially accelerate how should we think about incremental margins in the two different segments.

So on the on the sea.

Syed.

We should see that we should see expect incremental margins just because.

We have done a lot of good work there with respect to driving synergies, but also.

<unk>.

The cost reductions and things like that so that should translate into and youre seeing that in our fourth quarter results. The Jamie short are strong the margin was and the team has done a great job on cost reduction maintaining price discipline.

And also.

Ashish Kanpur: So on the SEM side, the Margin Expansion story will depend on what happens to the destocking story on the telecom side, what happens to the destocking story on the healthcare side, but also how strong the demand for Dyneema remains, which, as you know, is pretty crucial to our margins. So, you know, all those three things would play a big, important role to define the margins on the SEM side, and then that, of course, determines the total margin.

Margin expansion so on.

On the SCM side.

Margin expansion story will depend on.

What happens to the Destocking story on on.

The Pentagon side, what happens to the Destocking story on.

The health care side, but also.

How strong the demand for Dynamo remains which as you know is pretty accretive to our margins.

No.

Those three things would be.

Important mix.

To define the margins on the RCM side, and then that of course determines the total margin for the company as well.

Ashish Kanpur: Thank you very much. Thank you. One moment for our next question. Our next question comes from the line of Kristen Owen with Oppenheimer and Company. Your line is now open. Thank you, good morning, and I'll.

Alright, Thank you very much.

Thank you one moment for our next question. Please.

Our next question comes from the line of Kristen Owen with Oppenheimer <unk> Company. Your line is now open.

Great. Thank you good morning, and I'll I'll Express my Thanks also to you Bob and congratulations Ashish.

Operator: I wanted to ask about the free cash flow outlook for next year. I mean, as you are talking about, the potential return to growth. That's how we should think about free cash flow in the context of the pandemic. They're great questions.

I wanted to ask about the free cash flow outlook for next year I mean, as you are talking about a potential return to growth and seeing some of the mix benefits and then some of the working capital that you've been carrying over the last couple of years, just how we should think about free cash flow.

In the context of <unk>.

<unk> returned to growth.

Jamie Beggs: So there are a couple different dynamics in the cash flow. So as we return to growth, we would expect a cash... Capital, a good way to think about that and your models. runway, we expect that.

Yes, great question, Kristen So theres a couple of different dynamics on the cash flow just to take into consideration.

Sorry to return to growth, we would expect our cash used in working capital a good way to think about that in your models is we do have about a 12% working capital run rate, we expect that to continue and the team has done a really great job managing inventory and in light of sales being more uncertain.

Jamie Beggs: The team has done a really great job, so that's going to be one of the factors. Another dynamic you will see in the guidance slide is that our capital, I'll move up, yet about a year ago, certain IT investors increased their drive. Wellesley used data, and that's really centered around Cohen.

So that's going to be one of the factors that will be a use of this coming year. Another dynamic what you saw on the guidance slide is that our capital expenditures will move up to a $140 million. We did about $120 million last year. The increase is really primarily focused on certain it investments to drive greater productivity efficiency as well as these data.

And that's really centered around the S. Four Hana implementation that will begin this year and will go into the next couple of years.

Jamie Beggs: And we gave you information on the tax rate as well as the interest rate, so that should give you the Okay, that's great. I did want to ask about that CapEx number. So thank you for the context there.

We gave information on the tax rate as well as interest so that should give you. The primary components as we think about free cash flow for the year.

Okay. That's great I did want to ask about that Capex number. So thank you for the context there.

Kristen Owen: Somewhat of a related question to sort of investment for growth and organic growth opportunities. And Ashish, you mentioned in your prepared remarks, particularly around Latin America, and as we are thinking about some of the near-shoring trends, can you just help us understand the market positioning in Latin America, how you're positioning to capture some of it? Yeah, Kristen, thanks for the question. Actually, with respect to R&D on the organic side, if you think about Latin America specifically, the biggest markets are packaging. And so we have to work as near-shoring happens, whether that goes into whatever industries are playing, wherever our customers are playing, we have to play with them in that part of the world.

Somewhat of a related question to sort of investment for growth and organic growth opportunities and Ashish you mentioned in your prepared remarks.

Particularly around Latin America, and as we are thinking about some of the near shoring trends can you just help us understand the market positioning.

Latin America.

You are positioning to capture some of those trends. Thank you.

Yes, Chris and thanks for the question.

Italy.

With respect to.

R&D on the organic side, if you think about Latin America, specifically the biggest.

Markets are packaging and consumer and so.

<unk>.

We have to work at or near shoring happens whether that goes into.

<unk>.

Our industries are playing that around our customers are planning, we have to play with them in that part of the world and Thats what gives us the speed market to speed advantage, that's what give us.

Ashish Kanpur: And that's what gives us the speed, the market-to-speed advantage, that's what gives us the closeness-to-customer advantage, and the relationships that we build. So I think in the end, we follow where our customers are going, and if Latin America becomes a bigger hub, we will accordingly scale our operations and our capabilities in that part of the world. Great, thank you.

The closing is to customer advantage and are the relationships that we build so I think in the end, we follow where our customers are going and if Latin America becomes a bigger hub.

We will accordingly, our scale, our operations and our capabilities in that part of the world as well.

Great. Thank you so much.

Operator: Thank you. One moment for our next question, and our next question comes from the line of David Wang with Deutsche Bank. Your line is now open. Hi, good morning.

Thank you one moment for our next question. Please.

And our next question comes from the line of David Wang with Deutsche Bank. Your line is now open.

Hi, Good morning, Ashish getting your focus on organic growth.

David Wong: Ashish, given your focus on organic growth, I guess I have two questions. One, given the service intensity of your business, should we expect a period of elevated SG&A costs given your focus to drive growth and reinvest? And then second, I think R&D historically is below 3% for Avient. Is that the right level going forward?

I guess two questions one given the service intensity your business has shall we expect periods of elevated SG&A costs. Given your focus you drive growth in grain burst and then second I think R&D is very clear it's below 3% for AVN.

At the right level going forward.

Ashish Kanpur: Yeah, David, thanks for the questions. You know, service intensity, as you said, a lot is happening with respect to the world changing, you know, as service intensity is increasing. But there's also technology getting available to serve our customers better, and I think a little bit of that is what Jamie was mentioning with the S4 HANA and utilizing data to serve customers in a more efficient way. So I don't expect our SG&A to grow bigger with respect to serving the intensity for the customers. So I do it, you know, to serve our customers better. I think our teams are doing a very good job in terms of really making the best use of customer stratification and utilizing data and information to serve our customers in a more proficient way. And even technology, especially in our color, for example; we are now using digital tools to turn around color matches faster with our customers from four days to two days, for example.

Hey, David Thanks for the questions.

Service intensity as you said.

What is happening with respect to.

The voyage ending.

As as the intensity is increasing but there is also technology getting available to serve our customers better and I think a little bit of that is what.

Jimmy was mentioning with the S. Four hotline and utilizing data to serve customers in a more efficient way. So I don't expect our SG&A to.

Grow bigger with respect to the intensity for the customers.

So our customers better I think our teams are doing very good job in terms of.

Really.

Doing the best use of customer stratification, and utilizing data and information to serve our customers in a more proficient.

And you want technology, especially in our color. For example, we are now using digital tools to turnaround.

Color matches faster with our customers from four days to two days for example, and then I think that's a real improvement and will give us a competitive advantage. So that's just an example of Javier using technology.

Ashish Kanpur: And then I think that's a real improvement and will give us a competitive advantage. So that's just an example of how we are using technology to serve our customers. On the R&D at 3%, you know; I don't think there's a magic number for R&D as a percentage.

To serve our customers better on the R&D at 3%.

I don't think Theres, a magic number for R&D as a percentage as I said right now we are looking at how we prioritize what how many of you are spending in the places where we should be spending it.

Ashish Kanpur: As I said, right now, we are looking at how we prioritize whatever we are spending in the places where we should be spending it, which are the areas of growth for us, and are we feeding them in the appropriate way. And as we evolve our strategy and build new vectors, if we need to add more, we'll do that, you know, not just in R&D but other parts of the organization as well. But as I said, you know, everything has to be linked to the strategy in the end. And whatever is needed to do that, we'll allocate resources.

Are the areas of growth for us and RV feeding them in the appropriate way and as we evolve our strategy and brand new vectors, if we need to add more will do that not just in R&D, but are there other parts of the organization as well because I said.

Our everything has to be linked to the strategy and the yen.

And whatever they needed to do that we'll put resources accordingly.

Jamie Beggs: Got it. And then on leverage, I don't think you're assuming any debt paydown this year, but I think previously you had a target of 2.2 times by 24. Is that still a valid target?

Got it.

Then I'll leverage housing youre, assuming debt pay down this year, but I think previously you had targeted at two two times by $2000 what is that.

Jamie Beggs: Yeah, I mean, our goal is to get down closer to two times. We ended the year at about 3.1. Based on where we're anticipating the year to end up, we'll be below that as well. And as you know, we use a net debt number, so regardless if we actually pay down debt or keep it on the balance sheet, that leverage...

You have a valid target.

Yes, I mean, our goal is to get down closer to two times. We ended the year about three one times based.

Based on.

We're we're anticipating the year to end up we'll be below that as well and as you know we use a net debt number or is that regardless, if we actually pay down debt or keep it on the balance sheet that leverage number doesn't move that we're committed to being closer to two times overtime.

Jamie Beggs: But we're committed to being. Thank you. As a reminder, that's Star 1-1 to ask a question.

Okay. Thank you.

Thank you as a reminder, that star one wanted to ask a question.

Operator: One moment for our next question. Our next question comes from the line of Vincent Andrews with Morgan Stanley. Your line is now open. Hi, this is Turner Henry.

Our next question.

Our next question comes from the line of Vincent Andrews with Morgan Stanley. Your line is now open.

Hi, This is Johnny Hendrix on for Vincent I Am wondering if you could size or just provide additional color on the opportunity for fiber optic mentioned for 2025, and what are you expecting as that ramps up in the second half of this year.

Vincent Stephen Andrews: Size. Mueller. What are you attracted to in particular?

Jamie Beggs: Farrell. But that's our telecom business, specifically our fiber line business, which represents about 4% of sales, just to put that in context. We do expect the 1st half to still be in a destocking mode with some recovery in the back half, but I would say it's pretty muted on a year-over-year basis. I don't expect. Barrett.

So that's our telecom business, specifically, our fiber line business, which represents about 4% of sales is to put that in context, we do expect the.

The first half to still be in a destocking mode with some.

Recovery in the back half, but I would say, it's pretty muted on a year over year basis, I don't expect there to be much growth there considering how much first half destocking, we still expect there to be and as we look into 2025 I mean, it really is dependent on how that program is rolled out there is a tremendous opportunity with regards to fiber optics and laying down and bringing.

Jamie Beggs: As we look into 2025, it really depends on how that B program is rolled out. There's a tremendous opportunity with regard to fiber optics and lay down. We did provide some information at one of our last Investor Days that was back in June, but we still believe in that, and we're not providing any guidance on how to do that. Thanks. So, how is your order visibility this quarter, and can you provide any notes? Last quarter, specifically, you noted visibility was shorter and plant shutdowns. Is that... Is that affecting the first quarter at all?

Internet access across rural areas, we did provide some information at one of our last Investor day that was back in September.

About how that opportunity to grow and we still believe in that but we're not providing any guidance at this point for 2025.

Thanks makes sense. So how is your order visibility this quarter and can you provide any notes on mix last quarter. Specifically you had noted visibility with shorter than normal due to plant shutdowns is that still.

Is that affecting the first quarter at all.

Jamie Beggs: So from a visibility standpoint, and we mentioned this in the last quarter as well, all of our customers are, The end. Thank you. Thank you. Thank you. So it's about 20 days out now versus maybe a few months ago or a year ago. So it is something that we're monitoring. I mean, some visibility issues as we think about the first quarter are that we're in the middle of the Chinese New Year. So right, how Asia is going to come back is a factor that we're looking at until they actually start. That's a factor. How it ends up playing out, even with, a little bit different. Goulash.

So on the <unk>.

Visibility standpoint, and we mentioned this in the last quarter as well is that all of our customers are managing inventory very tightly as they monitor the demand from their customers.

So it's about 20 days out now versus May.

Maybe a few months ago or a year ago. It was closer to like 45 days. So it is something that we're monitoring and we have to be nimble in our supply chain to be able to meet that.

Hey, Sam.

Visibility issues as we think about the first quarter is that we're in the middle of Chinese new year is that right. How Asia is going to come back as a factor that we're looking at until they actually start placing orders again.

That's.

Factor and then.

How it ends up playing out even with Easter coming in.

Bit differently in the first quarter versus the second quarter last year is something that we're also watching but that should give you some contact that a little bit shorter we are confident in our guidance that we're giving up for the first quarter.

Jamie Beggs: But that should give you some context. It's a little bit shorter, but we are confident in our guidance. But it is much shorter visibility than what we have.

But it is a much shorter visibility than we've had historically.

Operator: Thank you. I'm currently showing no further questions at this time. This concludes today's conference call. Thank you for your participation. You may now disconnect. Everyone have a wonderful day.

Great. Thank you for the color.

Thank you.

Currently showing no further questions at this time. This concludes today's conference call. Thank you for your participation. You may now disconnect everyone have a wonderful day.

Thank you. Thank you.

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