Good morning, ladies and gentlemen, and welcome to Avient Corporation's webcast to discuss the company's fourth quarter and full year 2024 results. My name is Michelle and I will be your operator for today. As a reminder, this conference is being recorded for replay purposes. I would like now to turn the call over to Joe Di Salvo, Vice President, Treasurer and Investor Relations. Please go ahead.

Thank you, and good morning to everyone joining us on the call today. Before we begin, 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 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. We encourage you to review our most recent SEC filings and any applicable amendments for a complete discussion of these factors and other risk factors that may affect our future results. During the discussion today, the company will use both GAAP and non-GAAP financial measures. Please refer to the presentation posted in the Investor Relations section of 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. A replay of this call will be available on our website. Information to access the replay is listed in today's press release, which is available at 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 good morning, everyone. 2024 was my first full year as CEO of Avient and an important year of change for our company. Over the course of the year, we developed and launched a new strategy to deliver and accelerate organic growth. As part of our evolution as a company, we articulated a new purpose which is to be an innovator of material solutions to help our customers succeed, while enabling a sustainable world. Our strategic approach is to intersect secular trends and high-growth markets with our technologies to create product platforms of scale. We have conducted extensive portfolio prioritization and identified growth vectors to both catalyze growth in our core and to build businesses in high-growth markets supported by secular trends. As we began deploying our new strategy, it was important that we also remain focused on delivering performance in the present. Our overarching objective is organic top line growth with margin expansion on the bottom line. I'm very pleased to report that in 2024, we delivered both. On this slide, we present organic revenue growth by region, which removes the impact of foreign exchange for the full year 2024. As you can see, we grew organically in every region of the world, including EMEA, where the macro environment was quite challenging. We also realized significantly higher growth versus respective regional GDP for the U.S. and Canada, Asia, and Latin America regions. This was driven by our enhanced focus on customers, share gains, winning new product specifications, and restocking in certain end markets. Some of our key highlights for full year 2024 are shown in this next slide. Organic sales for the total company increased by 4%. Both our business segments grew and both expanded adjusted EBITDA margins. Organic sales growth was 3% for Color, Additives and Inks, or CAI segment and 6% for Specialty Engineered Materials or SEM segment. Adjusted EBITDA margin expansions were 90 basis points and 110 basis points for CAI and SEM segments, respectively. For the company, our adjusted EBITDA margins expanded 20 basis points to 16.2%. Operationally, we remain disciplined and leveraged our top line growth to deliver 13% adjusted EPS growth for the year, which includes the impact of FX. In December, at our Investor Day in New York, we shared our new company purpose and strategy, which has already been under execution for some time. We strengthened our leadership team with new appointments for the Chief Technology Officer, Chief Information Officer, General Counsel, and Senior Vice President of New Business Development and Marketing Excellence roles. Since then, in early January this year, we have rolled out a new incentive compensation plan for the company to ensure there is a direct alignment between executing our strategy and how and where our employees are focused. And culturally, like every year, we strive for continuous improvement. That starts with safety. I'm proud to share that 2024 was a record year for safety for us and our injury incident rate was the best in the company's history. That being said, our ultimate and ongoing goal remains zero injuries. So we will continue to be disciplined and focused on further improving our safety performance. One last point I would like to highlight for the year is our 5% dividend increase. That increase marked the 14th consecutive year of annual dividend growth for Avient. At the Investor Day in December, we also shared our prioritized growth vectors. One of our identified growth vectors is composites for defense and law enforcement to catalyze growth in our core business of advanced protective materials. The market need for lighter and better protective materials is driving strong innovation in our labs and manufacturing processes. Today, I will highlight a new innovation in our Dyneema portfolio that is used in military and law enforcement applications. As you may know, Dyneema is the world's strongest fiber and we just announced a breakthrough launch of our third-generation technology of this product line under Dyneema-HB330 and Dyneema-HB332. This innovation offers industry-leading performance through unmatched ballistic protection that is able to stop high-velocity threats with precision. It has outstanding thermal performance and retains its stiffness and properties in high-temperature environments. And its ultralight strength delivers the lightest possible solution for hard ballistics applications without compromising protection. For law enforcement, this innovation will enable a high-performance system that is up to 45% lighter than current solutions in use. For military personnel, it will enable upwards of 20% cost savings when compared to current materials that have been incorporated into military hard armor contracts. The lightweight strength of Dyneema enhances agility, comfort, and overall mission effectiveness for those who protect and serve. This proprietary and revolutionary innovation will be used by our customers for both personal armor and vehicle armor. Before I turn the call over to Jamie, I would like to comment on a significant decision we have recently made in the first quarter of this year. We decided to cease all work related to the implementation of S/4HANA, a cloud-based ERP system, which we had begun some time ago. The decision was based on the risk, complexity, time, and associated costs, all of which have substantially increased to complete the project. Accordingly, the initial value proposition of the project no longer holds true. Further, we have determined that there are alternative solutions less than a global ERP system that are less costly, easier to implement, and can deliver substantially the same benefits, which will ultimately deliver better returns for our shareholders. As a result of this decision, the company will recognize a noncash impairment charge of approximately $71 million associated with capitalized implementation costs and a charge of approximately $15 million associated with contractual obligations for license fees in the first quarter of 2025. These charges will be considered special items and are not included in our adjusted 2025 projections. I want to reassure our investors that we don't take such decisions lightly, but I fully believe it is the right one going forward for the company and our shareholders. With that, Jamie can provide more context on 2024 and outlook for the year ahead.

Thank you, Ashish, and good morning, everyone. The headline for the fourth quarter is that overall earnings results were in line with expectations. We delivered within our guidance range for both adjusted EBITDA and adjusted EPS. The rapid strengthening of the U.S. dollar against other major currencies in the fourth quarter unfavorably affected our EBITDA results by $2 million and EPS by $0.01. As a reminder, approximately 60% of our revenue is generated outside the United States. From a total company perspective, the fourth quarter marks our third consecutive quarter of organic sales growth, which grew 5% year-over-year. Adjusted EBITDA and adjusted EPS were down slightly as the benefit from higher sales was more than offset by the year-over-year impact of variable compensation accruals, as we said would be the case during our last quarterly earnings call. This negatively impacted fourth quarter adjusted EBITDA and adjusted EPS by $10 million and $0.08, respectively. Turning to segment performance. Color, Additives and Inks grew organic sales by 3%, driven by strong demand in drug delivery, consumer discretionary products, particularly in Europe and Latin America, and building and construction materials in the United States. Offsetting the growth in these end markets were sales into transportation, where both the U.S. and Europe were down year-over-year. While the segment did benefit from raw material deflation in the prior quarter, this is not the case in the fourth quarter, where the segment's raw material basket was essentially flat to last year. Higher sales and favorable mix partially offset the impact of variable compensation reset, which resulted in an EBITDA decline versus the prior year. Our Specialty Engineered Materials segment posted 8% sales growth and 13% EBITDA growth, excluding foreign exchange. This segment was supported by robust demand for engineered materials and remote monitoring devices for health care applications, composites for building and construction and wind energy applications, as well as moderate growth in defense and consumer applications. The segment had overall raw material inflation, primarily related to certain flame retardant materials, but pricing and mix were favorable, resulting in a net price benefit of $3 million for the quarter. Higher sales and favorable mix more than offset the impact of variable compensation within the quarter, leading to adjusted EBITDA growth as well as margin expansion for the segment. Moving to the full year results for 2024. We accomplished what we set out to do by growing the top line in excess of market as well as the bottom line through customer intimacy, innovative offerings, and operational discipline. Starting with the segments. Color, Additives and Inks grew organic sales by 3% in 2024. Performance was driven by new applications for drug delivery and building and construction, as well as demand recovery in packaging and consumer end markets. Adjusted EBITDA margins expanded 90 basis points, driven by operating leverage from higher sales and favorable net price benefits. SEM sales grew 6% over the prior year, excluding the impact of foreign exchange. The Composites business, which represents approximately 55% of the segment, benefited from strong demand and defense applications, as well as growth in building and construction. Composite growth was tempered by destocking in the telecommunications end market. This segment also grew with Engineered Materials, especially in health care applications. Adjusted EBITDA margins expanded 110 basis points, primarily driven by operating leverage from higher sales and favorable mix from margin-accretive platforms. For total Avient, adjusted EBITDA grew 6%, excluding foreign exchange, to $526 million for the full year. Earnings growth came from higher sales, favorable net price associated with raw material deflation and lower costs from productivity measures. Taking this earnings growth and adding lower interest expense, we ended the year with adjusted EPS of $2.66, representing 15% growth over the prior year, excluding foreign exchange. Turning now to our 2025 guidance. For the first quarter, we are projecting adjusted EPS to be $0.76 in line with the prior year first quarter and includes a $0.04 headwind associated with the strengthening U.S. dollar. This translates to 6% adjusted EPS growth, excluding foreign exchange. You may recall that last year's first quarter results benefited from the timing of outsized defense orders. As a reminder, the order patterns and sales for this market can be lumpy, resulting in quarterly swings. So when considering this difficult comparison to the first quarter last year, this is an encouraging start to 2025. From a full-year perspective, we are providing a range to accommodate the current macro environment, which includes several uncertainties. We noted a few of these considerations regarding potential impacts from tariffs, economic conditions, consumer sentiment, and changes in policies. As it relates to potential tariff impacts, our exposure is largely mitigated as the majority of our sales within a country is meant for local consumption. In addition, from a supply standpoint, roughly 5% of our global raw material purchases are at risk of being subjected to direct tariffs. Of this 5% of our global spend, we are mitigating plans to source the majority from other countries. However, as we said in the past, the real question is the broader impact on global demand, which is uncertain and unquantifiable today. Despite these uncertain macro dynamics, we will remain focused on what we can control. Accordingly, we are providing a range for full-year projections for adjusted EBITDA of $540 million to $570 million and adjusted EPS of $2.70 to $2.94. The midpoint of the adjusted EPS range represents an 11% growth, excluding foreign exchange versus 2024. I'll now hand the call back over to Ashish.

Thank you, Jamie. And thank you to all listening to our call today, especially to the Avient team out there, who made possible the performance and highlights we reported today. That concludes our prepared remarks. Operator, please open the line for questions.

And our first question is going to come from Frank Mitsch with Fermium Research.

I think we had a positive end to the year. Ashish, you mentioned the Generation 3 Dyneema product, and I'm interested in its potential impact. I noticed that Defense sales remained steady at 7% for '24 compared to '23. While that could shift from 6.6% in '23 to 7.4% in '24, could you discuss the product you highlighted, your expectations for Defense, and how that relates to the challenging first quarter comparison as well as your outlook for '25?

Yes. Thanks, Frank, for the question. First of all, I want to emphasize that the product is driven by the needs of the market. And that's important because we want to have the innovation to be relevant. And as you saw, it represents a significant upgrade to the performance that both the Military and the Law Enforcement units currently utilize. This is an important part of our strategy as we move forward because it helps us maintain our margins, if not increase them, creating a more profitable mix. As I mentioned in my prepared remarks, this is patent-protected proprietary innovation, which creates a competitive advantage for us. The innovation will be utilized not just for personal protection, but also for vehicle armor, and we are extending this innovation to rifle-resistant helmets as well. We are continuing our efforts in commercializing these innovations, and they are well accepted in the marketplace for both military and law enforcement applications. Regarding defense, Q1 last year was particularly strong for us, with a year-over-year growth of 38%. The growth for that quarter was substantial, as 63% of the growth in defense last year came just from Q1. Therefore, we face a significant hurdle comparing it to this year. While this is a profitable segment for us, we are doing everything we can to ensure continued growth, as reflected in our EPS guidance.

No. Ashish, I appreciate the color, for sure. One of the things the market is now speculating is that we will have peace at some point in Europe, the Russia-Ukraine war. Do you have any insights as to how much that may have been driving some of this business? And what may happen in the case that, that we hopefully do get peace in Russia-Ukraine?

Yes. So I think short term, we don't expect much change in how this business has been performing. There are a couple of things to consider. First, we have tried to better balance our portfolio over time. This Defense segment is now 60% military applications and 40% in law enforcement and border security. We have been winning business in those areas, especially with the increasing focus on border protection. Then, based on the political climate, we expect NATO countries will likely increase their spending on defense and may prefer to be more self-reliant rather than relying solely on U.S. solutions. Additionally, we are continuously exploring new applications beyond Defense and Military, particularly in marine technology for sustainable infrastructure. Overall, the diversification of our portfolio plays a key role here.

Let me share my congratulations on a solid finish to the year. I was hoping, Ashish, that we could dig in a little bit more on your decision to stop the implementation of the SAP S/4HANA system. I guess just help us understand kind of where you were in the implementation process? Were you in kind of the second or third inning? Or were you a little bit later stage? And remind us also of the timing I guess, of when you were expecting that to be complete? And how do you think the timing of alternatives is going to compare in terms of when this is going to be completed and we could start to see some benefits from the new ERP system?

Yes. Thanks, Mike, for the question. Initially, our plan was to implement it across our U.S. and Canada sites, especially in the Color side of business. It involved several sites for Phase 1, or cycle 1, and then we planned to move to other parts of the world in subsequent phases. After about two years of work, we realized the timeline and associated costs were extending significantly, and the project had turned out to be much more complex than we had originally envisioned. Consequently, we realized it was high-risk to proceed with the planned implementation across that multitude of sites. We considered reducing the scope and proceeding with fewer sites but ultimately decided against that due to even higher costs. At the same time, we observed the emergence of new applications that could provide us similar benefits through software focused on machine learning and artificial intelligence. These applications, which are lower in cost and easier to implement, can effectively meet our needs without the high investment required for a global ERP system. In light of all these factors, we felt it was clear that moving forward with the S/4 system was not the right direction.

All right. And then the other question I had was on healthcare. It sounds like healthcare was kind of a driver in both segments in the fourth quarter. Can you give a little bit more detail on the strength that you were seeing in the fourth quarter? And how you would expect trends to play out in 2025?

Yes. Let me just say that healthcare was a very strong area of focus for us, and the team delivered double-digit growth in 2024. In Q4, we also experienced double-digit growth, with north of 15% in EMEA and Asia. The U.S. market was positive, showing close to mid-single-digit growth. Our success was driven by various factors, including restocking medical supplies, new business around continuous glucose monitoring devices, and recent wins in injector pens for diabetes treatment. Additionally, we saw growth from remote monitoring devices, indicating a positive trend in the healthcare vertical.

I just want to follow up on Defense. Is the base case in '25 still a mid-single-digit growth? And also, I guess, given the tough comp in '24 and potential for '25, do you expect Defense volumes and earnings that could be down year-over-year in '26 or do you think that will be offset by some of the new innovations and new generation of technologies you have here?

Yes, thank you, David. Let me talk about 2025. I believe mid-single digit growth is a reasonable expectation since we experienced double-digit growth in defense during 2024, which was about 14%. That's a significant comparison to address. Therefore, thinking around 5% or mid-single digits makes sense. Regarding 2026, it's harder to comment because this business can be unpredictable, so I prefer not to speculate. The pipeline for new projects looks promising, but we'll have better visibility as we move further into the year. Yes. So I mean, just to calibrate regarding guidance, we provided a range. If you take 2024 as a reference point, our weighted average real GDP in the regions that we operate is around 2.5%, and we grew organic local currency growth by 4%. This indicates that we are outperforming the market. In terms of 2025, the GDP projections are similar. Hence, our midpoint in guidance mirrors this expectation. Of course, the dynamics are different this year, the comps are different, but given the economic outlook, we anticipate similar performance to 2024. For new product impacts, our organic currency growth comprises volume, price, and mix. Typically, we expect to leverage pricing to offset inflation. Therefore, volume and mix can give us an additional 100 to 200 basis points of growth. Innovation plays a significant role in this mix, and you will see ramp-up from new business wins over our strategic period.

It has been a good end of the year. It seems that foreign exchange will be a 5% challenge in 2025 compared to 2024. You mentioned that 60% of your sales come from international markets. It appears the new administration aims to increase manufacturing in the U.S. Considering your business mix, do you view this as a positive or negative for Avient in the long term?

Yes, Mike, let me just answer it this way. I mean, if you look at our two businesses, CAI and SEM, SEM is 55% U.S.-based, and CAI is about 33% U.S. based. Therefore, the exposure of the CAI business to FX changes is greater than on the SEM side. The CAI business relies heavily on proximity to customers because of short response times. If manufacturing moves closer to the end-user, we become less exposed to FX. Nonetheless, our FX exposure remains considerable, given that 60% of our business is outside the U.S. In 2025, it's definitely a headwind. Jamie, would you quantify the EPS side?

Yes. Like we said in the earnings release, it's about a $0.12 headwind on a year-over-year basis. And then on an EBITDA basis of around $15 million. So what we see today and obviously, things are dynamic with regards to what's going on in the world, specifically with tariffs and reciprocal net between the different countries. And as Ashish mentioned before, the majority of what we do in all the countries in which we operate is for local consumption and our exposure outside of that is relatively small, less than 5% of our sales. However, how that is going to actually affect demand if inflation accelerates is really what's unquantifiable at this point. And it's another reason why we're a bit more cautious in our guidance because we're not sure how that will ultimately impact purchasing behavior.

I think it should be a net positive for us over the long term. It would mitigate our exposure to FX fluctuations, and we can also serve our customers more promptly. Overall, I think we can manage our supply chains effectively, ensuring we are not significantly affected by tariffs or raw materials exposure. Yes. So I just want to start by saying that on an organic revenue growth perspective, we have had positive growth printed in Europe, EMEA for the last three quarters in a row now. And though overall, Q1 last year was a negative growth there, we ended up progressing positively for the year. Our teams have successfully driven organic growth in Europe, particularly in the Color side of the business. On the SEM side, the growth remains a bit uncertain due to external factors. However, the 2025 GDP expectations for that region look promising, a significant improvement over last year, so we remain optimistic.

This is Steve Haynes, on for Vincent. I was hoping you could help a little bit with the full year EBITDA guide and bridging it. Maybe just kind of at the segment level, you touched on volume before, but maybe just from the margin side of it, how we should be thinking about that?

I would say that the guidance we presented today represents our best view based on the macro dynamics that are at play. Ashish mentioned how we expect volumes to evolve over that time frame, especially regarding many of the macro dynamics influencing it. From a margin expansion perspective, we expect to expand margins similarly to what we revealed during our Investor Day, driven by operating leverage from increased sales, favorable mix from innovations, and ongoing productivity improvements. Year-over-year margin expectations should range from 25 to 75 basis points. It's important to consider that we anticipate inflation around 2% for raw materials, but we aim to offset that with pricing as necessary.

Ashish, you mentioned in your prepared remarks, January, you started a new compensation strategy. It's really related to taking these bigger shots on goal, some of the strategy that you outlined at Investor Day. So I'm wondering how is that manifesting through your sales organization? What are some of the KPIs that you've aligned to that incentive structure to? And how should we, as sort of the outsiders, be tracking those KPIs?

Yes, I think it’s early to assess the impact, given that we rolled out the new plan only a month ago. The feedback from the teams thus far has been positive. The major change we made is that we previously had a uniform incentive structure. The new plan identifies different performance expectations based on a business's needs—some must grow faster than macro growth, while others focus on income and cash generation. KPIs have been tailored for each business segment, including metrics for sales growth and operating income growth, among others. At the company level, there are metrics that contribute to overall performance, ensuring alignment within the organization.

Yes, from a free cash flow perspective, the range we're anticipating is between $180 million and $200 million. Some key parts of this forecast come from earnings growth, so assuming the midpoint of the range, that reflects about a $20 million increase year-over-year. We also expect to receive insurance proceeds from one of our environmental sites in the first quarter, which will serve as a tailwind moving into 2025. This, netted on a year-over-year basis, should amount to about $40 million. We also have differences in incentive payouts between 2024 and 2025 that will present a headwind. So all of these components will help shape our anticipated free cash flow. We expect about $120 million or so in CapEx. We're still assessing that figure as we want to ensure we prioritize growth effectively. Depending on the growth vectors we plan to fund this year, this number may fluctuate slightly. However, it would be partially offset by CapEx savings from halting the S/4 investment.

And our final question will come from Laurence Alexander with Jefferies.

This is Kevin, on for Lawrence. Most of my questions have been asked, but I guess I'll focus a little bit on end markets. I just want to get an initial sense of what you were seeing in terms of demand in China after the new year. And separately, maybe what you're seeing in automotive end markets?

Yes. So let me just say that China for us in Q4 grew 7%, Greater China area saw much higher growth than GDP. The majority of our business there is local, with about 30% exported. We are optimistic about Q1 as well. We're also gaining ground in technology concerning semiconductors and servers, linking to the digital economy, which is pivotal. As for automotive, our transportation sector saw a close to 20% year-over-year growth in China in Q4, and the electric vehicle market remains positive. However, the same momentum is not reflected in the U.S. and EMEA. Overall, while EV production is slower compared to previous years, we still observe mid-single-digit production volume growth.

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