Avient Corporation (AVNT) Q3 2024 Earnings Report, Transcript and Summary

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

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

Thank you, Joe, and welcome, everyone. I'm very pleased with our third quarter financial performance, which proved to be our second consecutive quarter of organic sales growth. We delivered sales of $815 million for the quarter, representing 8% growth over the third quarter of 2023 on an as reported basis and 8.5% organic sales growth, excluding the impact of foreign exchange. Both segments, Color, Additives and Inks and Specialty Engineered Materials grew sales. The growth was broad-based across all geographies and most end markets. The drivers behind the above-market growth were consistent with what we discussed last quarter. We won share, we were spec-ed in, in new product launches from our customers, and there continue to be some restocking in certain end markets. On the bottom line, the team delivered adjusted EBITDA of $130 million, which reflected 6% growth over the prior year third quarter. Both segments expanded EBITDA margins by 40 basis points each, driven by favorable mix as well as operating leverage from increased volumes. Our commercial and operational efforts more than offset the year-over-year headwind we faced in the quarter related to the variable compensation accruals that we have previously communicated. Adjusted earnings per share grew double digits, up 14% over the prior year to $0.65, which exceeded our prior guidance for the quarter by $0.03. This was due to better-than-expected demand and new product specifications for our color business in Latin America as well as timing of defense orders. Our teams are executing well across the globe, and we are winning business by focusing on customized tactics tailored to each of the regions. In the US and Canada, we have been focused on going deeper with our key global accounts and building new businesses related to some of the macro trends. In EMEA, we have been winning share by enhancing our customer focus and simplifying our go-to-market strategy. In Asia and Latin America, we are expanding our customer base through more local account penetration. In short, we have adjusted and deployed our commercial teams in ways to capitalize on the specific opportunities presented in each region, and we have had success. As we evolve as a company and start executing our new strategy, we have made some key organizational and structural changes in the recent months. First, we have streamlined our Color Additives and Inks segment under a single global leader and eliminated organizational complexity, particularly in Europe. We want to make it easier for our customers to do business with Avient and start seeing things from their lens. We want to provide them solutions and options to help solve their problems. It's an important step as we become more customer-centric and agile, all differentiators and enablers to our expectations of organic growth. We have reorganized select parts of R&D and consolidated certain talent from across the organization to enhance our capacity and capability in specific areas prioritized for growth. This consolidation also enables our technical expertise to be broadly leveraged across the entire company versus just serving individual businesses. Additionally, we continue to strengthen and build our leadership team that will help execute our strategy and take Avient into the future. Since my joining the company, we have hired a new Chief Legal Officer, Chief Information Officer, Chief Technology Officer and created and hired for a new role of Senior Vice President for new business development and marketing excellence. These important changes are directly aligned to our strategy to grow profitably and build new businesses of scale, while also leveraging digital tools to drive productivity and growth for the company. Furthermore, we are prioritizing the company's portfolios with differentiated expectations and resourcing them based on where the businesses are on their life cycle curves. Lastly, starting next year we are changing our compensation structure to more directly align to driving the company's strategy and desired behaviors to win in the market. We will share more at our Investor Day in December. But I wanted to share a few items and some perspectives today on how we have been working to drive both top-line growth and margin expansion for our future. Before I turn the call over to Jamie to cover the details of our third quarter results, I also wanted to highlight that earlier this month we did increase our dividend by 5% to an annualized payout of $1.08 per share. This marks the 14th consecutive year the company has increased the dividend since its inception in 2011. I view this as a reflection of our confidence in the company's underlying earnings growth and commitment to returning cash to shareholders. Now I will turn the call over to Jamie.

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

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

Thank you. [Operator Instructions] And the first question will come from Frank Mitsch from Fermium Research. Your line is now open.

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

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

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

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

Very helpful. Thank you.

Thanks Frank.

And our next question will come from David Huang with Deutsche Bank.

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

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

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

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

Okay, got it. Thank you.

Thank you.

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

Hey good morning. Nice quarter and outlook. Ashish I've heard a lot of companies talking about restocking for what it's worth. And I mean your organic growth was pretty impressive. Why do you think companies are restocking most of the outlooks we've seen from other companies are looking for things to decelerate or have decelerated. So, I'm just curious maybe by end market and why they are restocking and why is fundamental demand seem better for you guys and a lot of other traditional chemical companies?

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

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

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

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

Thank you.

Thank you.

And our next question comes from Laurence Alexander with Jefferies. Your line is open.

Good morning. I just have a couple of questions. One is can you break out a little bit some more granularity on what's driving the growth in Asia and Europe? And particularly, the angle I'm interested in is to what extent do you think you should be able to benefit from any cyclical acceleration in those markets? Or are there more secular markets you're chasing kind of not going to give you the same cyclical lift. I just want to understand the trade-offs there. And then the second one is with reference to the discussion you just had about shifting the culture, at larger chemical multinationals or multi-industrial, multinationals, when these sorts of initiatives happen, there's a lot of huffing and puffing to get like 50 to 100 basis points of better growth. But when you look at the segment levels, you often see much more dramatic acceleration, but there's always an issue around cannibalization and churn and giving up some businesses that are atrophying. What's your impression with Avient, as to how much of a drag you'll see or should we be thinking kind of five to 10 years out a significantly different margin structure and growth algorithm?

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

Thank you.

Thank you, Laurence.

And the next question comes from Vincent Andrews with Morgan Stanley. Your line is open. Q – Vincent Andrews: Good morning, everyone. Maybe Ashish, on the reorganization announcement that you made, I assume that's coming with some cost savings. So I'm wondering, whether your plan is to let those fall to the bottom line or whether you're going to reinvest those for growth?

Yes. I mean, honestly, we are doing this mostly because to grow the business and getting more streamlined around the customer needs. And so that has been our focus. Some of those savings have been coming as we have reorganized, and we are seeing that as part of the margin expansion that we are seeing. But I think mostly, the reorganization is around the strategy of what we are trying to deliver, to grow the top line and the bottom line. I think most probably savings and productivity will come as we implement our digital strategy, and we hired a CIO and some folks who are expert in that digital area as well. And as we -- and there's some low-hanging fruit here with respect to -- we are not talking necessarily artificial intelligence only, which is also part of the strategy. But even low-hanging fruit of how we can use digital in day-to-day operations to drive productivity in the company, and in our manufacturing plant. So that part should start implementing into more bottom line expansion, into the future years. But I think for 2024, the restructuring is really not around the cost savings, it is more around growing the business and serving the customer right. Q – Vincent Andrews: Okay. Very good. Jamie, if I could ask you on free cash flow, just looking at the nine months to date cash flow statement. There's been a big -- not a big, but I mean, there's been an increase in working capital. So I'm just wondering, how that's going to settle out in the fourth quarter. If you can just give us a sense of what free cash flow might be. And then, just a specific question on the working capital. The accrued expenses and other assets and liabilities, what's in there that's making that build up about $30 million year-to-date?

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

You’re welcome.

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

Good morning. Thank you for taking the question. Ashish, you touched on this in a number of your responses, but maybe to put a fine wrapper around it. A lot of the commentary, I think you said 50% of the growth in the quarter is coming from new business wins and share gains. Just help us unpack how much of that is coming from some of the commercial actions that you've already described sort of the alignment of those actions and thinking about full solutions rather than point solutions versus what's coming down the innovation pipeline? Are you getting into these new categories because you've got new products to serve? So help us unpack those two and then I'll have a follow-up. A - Ashish Khandpur So Kristen, I would say that, out of that 50%, about half is coming from new business development in these high-growth areas that we are going after. And about half is coming from market share gains because of commercial activity. And there could be 40-60 or 60-40 one way or another, but just in that ballpark. And so we feel pretty good how our teams are getting more and more engaged in some of these high-growth trends. And I have today -- have been working with our customers for some time as well. And now we are just making the bet bigger and bold -- are going in a bigger way after some of these things. So I think that's starting to show some traction, especially as the economy improves and more money flows in areas like building and construction and grids -- and electric grids. And these are secular trends. Again, we are chasing secular trends. And so we are seeing more momentum in those areas. And winning share is going to be an ongoing thing. I mean, that's something that we have to do every day and get better at our commercial activity. And as we implement digital tools and things like that, we should continue to start creating differentiation and win there. So -- but that -- obviously, the share winning is not a linear function. And after a while, you will see some tapering in with this amount of share that we can get. But I think it's something that we need to -- again, we are playing to win. We are not playing to defend. I guess that's the message I tell my team every day.

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

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

Thank you.

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

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

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

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

Yeah. Our target leverage range is actually closer to 2.5x Mike. So until we get to that point share repurchases are at least in a meaningful way or not on the table. We have historically not in the last few years just because of the M&A activity have offset share dilution with share repurchases. So that could be on the table, but no meaningful share repurchases at this juncture until we get our balance sheet at a healthier level.

All right. Thanks very much.

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