Good morning, ladies and gentlemen, and welcome to Avient Corporation's webcast to discuss the company's Second Quarter 2024 results. My name is Shannon, and I will be your operator for today. At this time, all participants are in a listen-only mode. We will have a question-and-answer session following the company's prepared remarks. As a reminder, this conference is being recorded for replay purposes. I would now like to turn the call over to Joe Di Salvo, Vice President, Treasurer, and Investor Relations. Please proceed.

Thank you, and good morning to everyone joining us on the call today. Before beginning, we'd like to remind you that statements made during this webcast may be considered forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements will give current expectations or forecasts of future events and are not guarantees of future performance. They're based on management's expectation and involve a number of business risks and uncertainties, any of which cause actual results to differ materially from those expressed in or implied. We encourage you to refer to our most recent reports, including our 10-Q and any applicable amendments, for a complete discussion of these factors and other risks that may affect our future results. During the discussion today, the company used both U.S. GAAP and non-GAAP financial measures. Please refer to the presentation posted in the Investor section of the Avient website where the company describes non-GAAP measures and provides a reconciliation for historical non-GAAP financial measures to the most directly comparable GAAP financial measures. A replay of this call will be available on the website. Information to access the replay is listed in today's press release, which is available at avient.com in the Investor Relations section. Joining me today is our President and Chief Executive Officer, Dr. Ashish Khandpur, and Senior Vice President and Chief Financial Officer, Jamie Beggs. I will now hand the call over to Ashish to begin.

Thank you, Joe, and welcome, everyone. I'm very pleased with our second quarter financial performance, which builds upon our strong first quarter results. As I have said on previous calls, one of our main areas of focus is to deliver organic top-line growth with margin expansion, and this quarter we achieved both. Starting with the top line, we delivered sales of $850 million for the quarter, representing 3% growth over the second quarter of 2023 on an as-reported basis. Sales, however, grew 5% on an organic basis, which excludes the impact of foreign exchange. This is particularly noteworthy because it has been seven quarters since the last time the company delivered sales growth. The organic revenue growth was broad-based across all geographies and in both of our business segments, color, additives and inks, and specialty engineering materials. Both segments benefited from gaining share, winning new product specifications, and inventory restocking in certain end markets. Our team's ability to grow revenue, control costs, and operate efficiently, as well as raw material depletion helped us expand adjusted EBITDA margins to 16.9%. That's a 100 basis points improvement versus the prior year, second quarter. This all led to adjusted earnings per share of $0.76, which is a 21% increase versus the prior year and exceeded our prior guidance for the quarter by $0.05. Our better-than-expected performance was primarily driven by the color, additives and ink segment, which benefited from slightly better demand as well as favorable raw material costs. From an end market perspective, growth in packaging and consumer had the greatest impact on the quarter by growing 8% and 10%, respectively. These are two of our largest end markets and both benefited from some restocking, particularly in Europe. We also had strong growth in building and construction and healthcare. This was primarily due to new product specifications and gaining share to deliver above-market growth. While macro indicators for building and construction remain somewhat weak, both the SEM and color segment in the U.S. and Canada gained share and won new business. On previous earnings calls, we have noted that healthcare restocking was lagging other end markets. I am pleased to report that we began to see a meaningful improvement in order patterns during the second quarter and grew healthcare sales 10% on a year-over-year basis. Not only do we believe restocking has run its course, we are well-positioned to capitalize in certain medical applications that are currently on trend, most notably in areas of drug delivery and monitoring devices. We have strategically partnered with key pharmaceutical companies and OEMs developing these devices, and we are growing with them as they benefit from strong underlying demand. In the defense end market, demand has been driven by overseas conflicts and specific NATO programs. Our second quarter sales were up modestly over the prior year second quarter and we continue to expect full year sales growth to be in the lower double digits. Telecommunication and Energy, which together constitute 7% of our sales, remain the more challenged end markets with sales down double digits in the second quarter. The telecommunications end market is primarily impacted by destocking in the U.S. and continued weak demand in Europe. As we start the third quarter, U.S. demand, which accounts for more than 60% of our sales, is improving and we expect overall telecommunications sales to return to modest growth in the second half of the year. It is a similar story in the energy end market where customers have been managing down inventory levels in the first half of the year. We see improving trends as we start the third quarter, in particular for applications designed to harden the electrical transmission grid. Our composites business provides innovative materials in applications such as cross arms and insulator rods which play an important role in ensuring the reliability of the grid in a sustainable manner. We expect the broad category of energy to grow in importance over time and we will continue to focus on developing innovative solutions in this space. I will now hand it off to Jamie to discuss our second quarter results in more detail and to provide an update on our 2024 outlook.

Thank you, Ashish. I was also pleased with our strong performance this quarter which unfolded largely as expected. As Ashish highlighted, total company sales grew 3% on an as-reported basis and 5% on an organic basis excluding the impact of foreign exchange. Adjusted EBITDA grew 9% and adjusted EBITDA margins expanded 100 basis points over the second quarter of 2023. Margin expansion was held by strong operational and cost control discipline by our teams as well as raw material deflation. Our adjusted EPS of $0.76 translates to 21% growth versus the prior year. In addition to the EBITDA growth, adjusted EPS also benefited from lower interest expense resulting from the $100 million pay down in August of 2023 as well as repricing of a term loan at that time and again in April of 2024. To share some perspective on regional sales performance, we have provided this slide to reflect organic sales growth by region. Beginning with the U.S. and Canada which makes up 41% of our total sales, the team delivered 5% growth versus the prior year. New product specifications and share gains underpinned the growth in our largest region. The consumer end market was also strong benefiting from restocking of personal care products and household goods. We expect to build on this growth in the U.S. and Canada in the second half of the year as we are also seeing increasing momentum from composite applications that replace conventional building materials and improving trends in the U.S. telecom and energy end markets. Latin America, while only comprising 6% of our total sales, had a very strong quarter and grew sales by 19%. Packaging is the primary end market we serve in this region which benefited from strong demand and applications used in food and beverage as well as cleaning supplies. The increased demand for such products was likely influenced by recent flooding in South Brazil as well as high temperatures and drought conditions in Mexico. Our presence in Latin America is also strategic allowing us to serve global OEMs and brand owners who are looking to near shore their supply chains in light of political uncertainty with trade flows and tariffs We are well-positioned to participate in this trend and expect to see continued long-term growth in this region. Sales in EMEA grew 4% as the region benefited from restocking and packaging particularly in food and beverage as well as in the consumer end market. This was partially offset by weaker demand for telecommunication applications. The sales growth in EMEA is a positive sign that we remain cautious, while there have been some favorable inflation signals correlated with a June interest rate cut by the European Central Bank, the manufacturing PMI dropped from May to June which may weigh on business and consumer confidence in the near term. As such, we expect year-over-year growth will likely remain muted for the region as we move through the balance of the year. In Asia, sales grew 1% as new business gains in healthcare was largely offset by weakness and building and construction. And while economic uncertainty in China remains, we are seeing share gains and encouraging trends in the order book for the region's two largest end markets which are packaging and consumer. Accordingly, we expect Asia to grow during the second half of the year. Turning to a review of segment performance, I'll start with color, additives and inks, which grew 5% excluding the impact of foreign exchange. The packaging end market, which represents about a third of segment sales, was up high single digits during the quarter. Most of this growth in the end market stemmed from Europe and Latin America as discussed previously. Building and construction also contributed to color's performance during the quarter. This growth was primarily driven by new business wins using our functional additive solutions and construction materials as well as some modest restocking by U.S. customers. The segment was able to maintain net price benefit from continued raw material deflation along with a focus on cost reduction particularly in Europe, which helped expand overall EBITDA by 15% and EBITDA margins by 200 basis points. The specialty engineered material segment grew sales 4% organically. The sales growth was primarily driven by restocking in the consumer and healthcare end market as well as share gains in wire and cable applications which helped grow building and construction sales. Consumer sales primarily benefited from restocking in personal care and household goods, as well as for composite applications used for outdoor sports and other high-performance composite fabrics. SEM's base healthcare business, which was impacted by restocking for several quarters, started to see momentum with new orders during the quarter. Examples of applications that showed order pick up included materials for respiratory care and monitoring devices. Weaker demand in telecommunications and energy partially offset the growth in consumer, healthcare and building and construction. Adjusted EBITDA grew 7% and EBITDA margins expanded by 80 basis points driven by raw material deflation and favorable mix from consumer and healthcare applications, which have accretive margins. Turning next to guidance, we're providing estimates today for the third quarter and an update to our full-year 2024 guidance range. We expect third quarter earnings per share of $0.62 which reflects a 9% increase over the prior year. We expect a second quarter trend of year-over-year growth to continue in the third quarter. Regarding input costs, in the first half of the year we realized approximately $35 million in raw material deflation which was in line with our expectations. However, this benefit is not expected to repeat in the second half of the year as we are seeing modest levels of inflation across the majority of our raw material baskets including hydrocarbon-based materials such as polyethylene and polypropylene as well as pigments and certain performance additives. Additionally, as previously discussed, we have also factored in a $30 million year-over-year headwind from variable compensation in the second half of the year. Taking all of this into consideration, expectations for the back half of 2024 are largely unchanged from our previous outlook provided in May. As such, we are adjusting our full-year guidance range to reflect the better-than-expected second quarter results and increasing adjusted EBITDA to a range of $515 million to $540 million and adjusted earnings per share to a range of $2.55 to $2.70. Our full-year adjusted EPS guidance now represents 8% to 14% growth over the prior year. Interest expense expectations are unchanged at approximately $105 million for the full year 2024. We do have a portion of our debt maturing in May of 2025 and we look forward to opportunistically refinance it in the near term subject to market conditions. If we were to refinance this debt during 2024, we do not expect it to have a material impact to our full year interest expense guidance of $105 million. We continue to expect our adjusted effective tax rate to be between 23% and 25% and our capital expenditures to be roughly $140 million, which are also unchanged versus our prior guidance. Before turning the call back over to Ashish for closing remarks, I wanted to draw attention to the release of our 2023 sustainability report. We just published our updated report online and it details our latest performance metrics and provides examples of sustainability in action at Avient. I'd like to call out a few highlights that we are particularly proud of and that I know are important to all of our stakeholders. First is our reduction in greenhouse gas emissions. Since 2019, we have reduced our Scope 1 and 2 emissions by 48% and are quickly approaching our goal of a 55% reduction. And second, are the independent rating agencies that recently updated our scores. Since our last report, EcoVadis increased even to gold moving us in the top 5% of all reporting companies and CDP increased our score to an A-, which showcased our alignment with the task force and climate-related financial disclosures. I'd like to thank our employees who contributed to improving our underlying sustainability performance and helped us earn these top-tier scores. I will now turn it back over to Ashish who will share some exciting news about our upcoming Investor Day.

Thank you, Jamie. Since joining the company, I have been speaking with many stakeholders including customers, employees, and investors. Those conversations along with collaboration among my leadership team are forming the basis of a strategic plan that we are finalizing and will share with investors on December 4th in New York City. Registration details will be forthcoming, but for now please save the date. I want to close by saying a big thank you to the global Avient team who worked tirelessly to deliver a strong second quarter. I am particularly proud of our teams for delivering organic growth for Avient after a long seven quarters while expanding margins on the bottom line. That concludes our prepared remarks for today. Operator, we are now ready to begin the question-and-answer session of today's call.

Thank you. Our first question comes from Mike Harrison with Seaport Research Partners. Your line is now open.

Hi, good morning. Congrats on a nice quarter.

Thank you, Michael.

Ashish, I was hoping that maybe you could share some of your thoughts about visibility into the second half. It sounds like your outlook on demand hasn't really changed a whole lot from where it was a few months ago. But I'm curious what you're hearing from customers and maybe what you're seeing in order patterns in some of your key markets that helps to provide some confidence that you can continue to see some growth momentum into the second half?

Sure, Mike. As you know, we finished Q2 with organic sales growth of 5%. Looking at our order book and how we concluded July, we believe we are on track to meet our revenue growth range for the year. In the first half, our printed sales grew by 0.5%. Therefore, the expected growth range for the second half has adjusted from low to high single digits, with the midpoint in the mid-single digits. That’s where we ended Q2. As we move into Q3, we see momentum in our order book, which aligns with our guidance. In Q2, seven out of our nine segments experienced year-over-year growth, representing over 90% of our revenue mix, and we anticipate this trend to continue in Q3 and Q4. We are observing a recovery in market demand, restocking activities, and our teams winning new programs and developing new applications, all of which are contributing to achieving mid-single-digit growth in the second half of the year.

Thank you. And I was hoping that you could talk a little bit about what you are seeing in healthcare. It sounds like maybe the destocking process has run its course, but maybe more than that, it sounds like you are seeing some growing opportunities around drug delivery and monitoring. Can you talk a little bit about some of the partnerships that you have developed and kind of how you see the healthcare segment evolving over the next quarters and maybe next couple of years?

Sure, Mike. As you mentioned, we believe the destocking in healthcare is finally over, and we are observing a restocking trend in both our equipment maker accounts and distribution. Resales are growing in these channels, indicating that destocking is mostly behind us. Our teams have shifted focus to capturing more market share and exploring new applications in high-growth areas, particularly related to drug delivery for obesity and glucose monitoring drugs. This strategic pivot towards fast-growing healthcare applications is significantly contributing to our healthcare sales, which grew at double digits as reported in Q2. Additionally, both our CAI and SCM segments are performing well in healthcare. The demand for medical equipment and devices remains strong, with robust restocking occurring for our catheters, inhalers, and other drug delivery devices like syringes. We are successfully maintaining our core businesses while also developing new applications in rapidly growing drug delivery devices. Since 2019, our healthcare equipment and drug delivery business has seen impressive growth at a rate of 14%. This sector is not only healthy but also quite profitable, and we continue to drive innovation in this area.

All right. Very helpful. Thanks very much.

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

I'm assuming that's the legal drug delivery type of businesses that you're referring to, because a, when you see such high margins, one has to wonder.

It is also legal, Frank. Thank you for clarifying that for us.

Absolutely. With the star in Q1 is that 38% growth in defense and you mentioned that it was up modest year-over-year in the second quarter. Can you provide a little more color there and what your expectations are for the balance of the year in that business?

Yes, Frank. Q1 was very strong in defense, contributing to both our growth and our margins. However, Q2 saw a sequential decline, yet a modest year-over-year increase compared to last year. Looking ahead to Q3, we anticipate continued strong growth in that sector, aligned more with our Q2 revenue results. Given that last year's comparisons were relatively weak, we expect to see double-digit growth in Q3 for defense. For the remainder of the year, we aim to close the full year with double-digit levels as Jamie mentioned in our prepared remarks. We're experiencing solid momentum in this business, successfully securing new programs not only with NATO countries but also with local law enforcement agencies, including capital police, as well as new projects in Germany and Spain alongside other NATO nations.

Very helpful. Thank you. And Jamie, you talked about raw materials being a positive for Q2, but then expecting inflated impacts in the balance of the year. Is there any way to quantify that? I think order of magnitude was deflation, something like a 10 million benefit in the second quarter and expectations on Q3 as to what you're going to see?

So Q2's deflation number was about $15 million. So for the first half it's about 35, close to $38 million for the first half. The back half we're expecting between $5 to $10 million headwind. Right now the way the curves look it may hit a little bit more in Q4 versus Q3, but that's our current outlook.

All right. So flat in Q3?

I would expect some inflation in Q3, but I think it will be on the lower side. I anticipate seeing a bit more in Q4.

Very helpful. Thank you so much.

Thank you. Our next question comes from the line of Michael Sison with Wells Fargo. Your line is now open.

Hey, good morning, nice quarter. In terms of the second half outlook for sales growth at mid-single digits, will that mostly be volume growth? It sounds like you have good momentum in the third quarter. Hopefully the guardians can keep up there as well. And then just a follow-up in terms of R&D, Ashish, any changes that you've made that you're sort of seeing some momentum there in new product development or such?

Yes, Mike. To address your first question about the second half outlook, our growth in Q2 is primarily driven by strong volume increases. This trend will persist into the second half, which will also be volume-focused. We're experiencing solid wins in our programs and new applications. Regarding your second question about changes we've implemented and their impact, we've made significant adjustments in our sales strategy by targeting different regions more effectively. For instance, in Asia, we've shifted our focus to local key accounts in addition to multinational ones, especially in China, where we've noted a shift in business dynamics. Our teams have successfully adapted to this change and gained market share. In EMEA, which has a low growth environment, our strategy is centered on increasing market share through innovative applications and consistent operational practices. In the U.S., we're capitalizing on trends such as the strengthening of the electric grid and are also achieving success with our new products and applications. Our volume growth reflects not only a rebound in market demand in certain regions but also substantial growth from new product and application development, along with market share gains globally.

Thank you. Regarding the strategic plan, I understand that much of it is still under development. What metrics do you consider most important for investors, and what will you emphasize at the Investor Day in December? Additionally, do you have any insights on the long-term earnings potential since you joined at the beginning of the year?

Yes. So obviously, I mean, I would ask for some patience until December 4th when we actually come back and give the numbers. But just so that, you know, Mike and I, we have highlighted in our past earnings calls, the three top of mind areas for me is really growing organically the top line while expanding the margins on the bottom line, amplifying innovation, which will feed into that top line and profitable bottom line growth. And then the third thing is building the leadership and talent for Avient of the future. And our strategic plan is really going to address all those things. And really, that's what I can share at this point in time. But that's where we are focused on how to grow, how to build, make innovation as a central part of our growth strategy, so that not only are we growing the top line in a sustainable way, but also differentiate ourselves from competition and improve our margins.

Great. Thank you.

Thank you.

Thank you. Our next question comes from the line of David Huang with Deutsche Bank. Your line is now open.

Good morning. Hey, Ashish, I did see that you're hiring a Chief Technology Officer and another person to be in-charge of marketing and new business development. Can you remind us how those organizations are currently structured in your company? And I guess, what do you wish to change or achieve with these new hires?

Currently, our R&D is structured within the businesses as well as in a central technology team. Most of our R&D personnel are in the business units, while some are part of the corporate center. With the appointment of the new CTO, we're focused on creating a continuous cycle of innovation. We categorize our projects into different horizons; for instance, Horizon 1 may take place in the business itself, while Horizons 2 and 3 might be incubated separately but still remain closely linked to our customers. We're working on refining our R&D model and have begun consolidating our R&D efforts, particularly in high-growth areas, to enhance our capacity and competencies. Previously, our R&D was spread across various divisions due to acquisitions, but we are now integrating these efforts to achieve significant scale in key growth areas. Organizational changes are underway, and the CTO will be an integral part of this transformation. On the marketing side, we recognize that the technological landscape is evolving rapidly, particularly with advancements in artificial intelligence, which will significantly impact electric power distribution and generation. This presents opportunities for our business, as we can supply materials in these emerging areas. Additionally, as semiconductors are crucial for AI, we see potential for growth as a material provider. We need to better understand these fast-evolving markets and refine our approaches for effectively commercializing our technologies. The new marketing position we've advertised will help us tackle these challenges.

Got it. And then just going back to the share gains you mentioned, I guess how much does share gains contribute to their volume growth in the quarter? Sounds like they're more related to sustainable solutions and composites. I guess, if you look at the organic volume growth for those two platforms, where are they today? And I guess, is there any fundamental underlying competitive dynamic change that's contributed to some of the share gains?

Yes. So I think the share gains actually were not as much in composites this time as they were in our traditional engineered materials on the SEM side. Clearly on the color generative side, we saw broad-based share gains and taking market. I think we expect composites to play bigger as I was mentioning earlier in my comments with respect to winning share in defense and other things with NATO countries. So composites are going to kick in there. Also, we are seeing some products in building and construction area with respect to panels and composite materials that are used in construction of homes that we are seeing momentum in. So I think composites are going to be largely a second-half story for us. But in general, we have seen share gains on traditional engineered materials side. With respect to your second question, which was –

It wasn't a second question.

So David, maybe just add a bit more, because I think you're looking for specificity between on the 5%, how much was related to share gain, how much was related to new business wins, and then also we had restocking as well. And like she said, I think the applications that you call that with composites and for sustainable solutions, that's really more on the new business gain side. Like for instance, in building and construction for the company, it was up 15%, and that really is because of the new applications either in the functional additive space or in certain applications on the composite side that really started to take win with new applications. And then in other cases, also in building and construction, for instance, in the wire and cable space, that's more of a share gain. And then, if I go into something like in your packaging, which is up 11% within the region. That really was driven highly by restocking in that space, because the underlying market conditions wouldn't suggest that be the case. So it really is a mix between all three of those buckets for how organic growth grew within the quarter.

Okay, got it. Thank you.

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

Hey, good morning. This is Kevin for Laurence. I'm curious about how you expect your mix to change in the short to medium term, particularly in the latter half of this year and into 2025 and 2026. Thank you.

Yes, from a back half perspective, we're not expecting a whole lot from price mix to come through. As Ashish mentioned earlier, it's really a volume story in the back half of the year. There may be some mix that comes through, because if defense comes up a little bit stronger in the back half, that may help with margin expansion. But we're not expecting price mix to be material for the back half. We haven't come up with estimates for '25 and '26. As Ashish mentioned before, we are interested in amplifying innovation and as those programs start to take more hold, we do expect margin expansion to continue. So we expect that to be positive, but we'll get more specifics when we get to December 4th.

Okay, understood. And I guess you talked a little bit about pricing, but I mean, just with raw materials coming down, I'm just curious, let's say, if that trend were to continue into 2025, I mean, would you expect any kind of knock-on effects from, let's say, pricing pressures coming from customers further downstream? Or do you expect to hold about that?

Well, pricing is actually going up in the back half of the year. So like I answered with Frank, we expect $5 to $10 million in the back half of the year. We have a strong history, if you go back to the last eight to 10 quarters of being able to have a net price benefit, regardless if it's an inflationary or deflationary environment. The teams have done a really nice job with that. I expect that to continue to be the case.

Okay. Thank you.

Thank you. Our final question comes from the line of Vincent Andrews of Morgan Stanley. Your line is now open.

Thank you and good morning. This is Turner Hinrichs on for Vincent. Can you help us understand what's going on from a cash flow perspective and what you expect from working capital for the year?

There may be just a little bit of a comparison to prior years. So we had a little over $185 million of free cash flow. And as we look into 2024, our capital expenditures for the year are slightly higher than last year. We estimate about $140 million. So taking that into effect, we do expect two things to change for 2024. One is the CapEx and the other is working capital. We do expect the higher sales level to also be a cash use versus we had about $40 million of a cash good guy in 2023, which won't repeat in 2024 because of the sales good guy. Maybe as a reminder, our working capital's percentage of sale averages between 12% and 13%. We expect that to continue through the back half of this year too.

Great. Thank you. One additional question that I had, what parts of the raw basket is driving the expectation for additional inflation in the fourth quarter relative to the third quarter? And is this something that you all could see continuing?

Yes. So, what we're seeing in the back half really relates to pigments, certain performance additives as well as our hydrocarbon basket, which is primarily driven by polyethylene, polypropylene and TPE. That's really what we're seeing in the current curves. I mean, obviously that's dependent on kind of the evolution as we kind of go through the back half, but that's the best visibility that we have at this point.

Great. Thanks. Appreciate the color.

Okay. With that, I think we'll conclude today's call. Thank you everyone for joining us. And we'll see you next quarter.

Thank you.

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