Avient Corporation Price & Performance (AVNT)

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 forecast of future events and are not guarantees of future performance. They are based on management's expectations and involve a number of business risks and uncertainties. Any of which could cause actual results to differ materially from those expressed in or implied by the 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. [indiscernible] the discussion today, the company will use both GAAP and non GAAP financial measures. Please refer to the presentation posted in the InvestorRelationssectionoftheAvianWebsitewherethecompanydescribesthenonGAAPmeasuresandprovidesareconciliationforhistoricalnonGAAPfinancialmeasurestheirmostdirectlycomparableGAAPfinancialmeasures.Areplayofthiscallwillbeavailableonourwebsite.Informationtoaccessthereplayislistedintoday'spressrelease.whichisavailable@avian.com in the Investor Relations section. Joining me today is our President and Chief Executive Officer, Doctor. Ashish Kompur. And Senior Vice President and Chief Financial Officer, [indiscernible] I will now hand the call over to Ashish to begin.

Thank you, Joe. And good morning, everyone. 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 FX 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 leverage our top to deliver 13% adjusted EPS growth for the year which includes the impact of FX. In Dec. 0, 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 CTO CIO, General Counsel and SVP of New Business Development, and Marketing Excellence roles Since then, in we have rolled out a new incentive compensation plan for the company to ensure is 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 0 injuries so we will continue to be disciplined and focused on further improving our safety performance. 1 last point I would like to highlight That increase marked the fourteenth consecutive year of annual dividend growth for Avian. As I invested in Dec. 0, we also shared our prioritized growth vectors. 1 of our identified growth vectors is composite for defense and law enforcement to catalyze growth in our core business of advanced protective materials. The market need for lighter, and better protection 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 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 [indiscernible] 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 performance system that is up to 45% lighter than current solutions in use. For military personnel, it will enable upwards of 20% rate 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 We decided to seize all work related to the implementation of [indiscernible] 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, 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.

A result of this decision, the company will recognize a non cash impairment charge of approximately $71,000,000 associated with capitalized implementation costs and a charge of approximately $15,000,000 associated with contractual obligations for license fees in the 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 1 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 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 unfavorably affected our EBITDA results by $2,000,000 and EPS by $0,.01 As a reminder, approximately 60% of our revenue From a total company perspective, the 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 adjusted EBITDA and adjusted EPS by $10,000,000 and $0,.08 respectively. Turning to segment performance. Color added as in 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 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 FX. This segment was supported by robust demand for Engineered Materials, and remote monitoring devices for healthcare 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 the pricing and mix were favorable, resulting in a net price benefit of $3,000,000 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 and packaging and consumer end markets Adjusted EBITDA margins expanded 90 basis points driven by operating leverage from higher sales and favorable net price benefit. 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 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 healthcare 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 $5.26,000,000 dollars for the full year. Earnings growth came from higher sales, favorable net price associated with raw material deflation, and lower cost 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 FX. Turning now to our 2025 guidance. For the we are projecting adjusted EPS to be $0,.76 in line with the prior year it includes a $0,.04 headwind associated with the strengthening U. S. Dollar. [indiscernible] This translates to 6% adjusted EPS growth excluding FX.

You may recall that last year's 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 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 on this slide, such as the extent and timing of interest rate cuts, the underlying performance of world economies, consumer sentiment, and of course, policy uncertainty and changes. 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 the uncertain macro dynamics like this, we will remain focused on what we can control.

Accordingly, we are providing a range for full year projections for adjusted EBITDA of $5.40,000,000 dollars to $5.70,000,000 and adjusted EPS of $2.7 to $2,.94 The midpoint of the adjusted EPS range represents 11% growth excluding FX 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.

Thank you.

And our first question is going to come from Frank Mitch With Fermium Research, your line is now open.

Good morning. Thank you and nice end to the year. Ashish, you highlighted this Generation 3 Dyneema product I'm curious as to what sort of impact it would have. I was surprised to see [indiscernible] defense as a percent of overall sales was steady at 7%, 24% versus 23 Obviously, that could be 6.6% in 237.4% in 2024. But can you can you talk about this the product that you highlighted and your for for defense in context also of the difficult 1Q comp and what your expectations are for '25? Thank you.

Yes. Thanks, Frank, for the question. First of all, the I want to emphasize that the product is driven by the innovation is driven there by by the needs of the market. And that's important because we want to have the innovation to be relevant. And as you saw that that it's a significant upgrade to the performance of what both the military and the law enforcement units see or are using today. So with respect to to this is an important part for our game as we go forward because it helps us maintain our margins if not increase them, make a more profitable mix.

Out of the 5 And then also, stay ahead of the competition. And as I mentioned in my prepared remarks, this is patent protected proprietary innovation. So it gives us a lot of confidence to it creates a more for us with respect to how to win share against competition and then retain it. So think all those things are very important Of course, as I mentioned, innovation is going to be used not just for personal protection, but also vehicle armor, And then we are continuing to innovate this with rifle resistant helmet as well. In the same spirit. So we are extending this in into other applications and those are under commercialization as well. So I won't give you a revenue number, but I can tell you that this innovation is very well accepted and is being commercialized with full strength in the marketplace. Both in the military segments as well as law enforcement and border With respect to defense, you know, as you may remember, was a pretty heavy defense quarter for us. We had 38% year over year. All these numbers I'm going to give you are constant currency or ex FX. So 38% growth year over year in And just to give you a flavor, we 63% of our sales of the revenue that of the growth 63% of the growth of defense last year came just out of So that's how lumpy was last year. [indiscernible] then a typical expected quarter would be for defense.

And so that's the kind of headwind we are hitting right now And as you know, this is a pretty profitable product for us. So both on the EPS side as well as on the sales side, this is a big hurdle to overcome and the teams are doing everything they can to do that and that's reflected in our EPS guidance that we talked about in the prepared remarks. So maybe I'll just stop there and see if there's any follow-up questions. No. Ashish, I appreciate the color. For sure. One of the things that Mark the market is now speculating is that we will have peace at some point in Europe, the Russia you Ukraine war. Do you have any insights as to to how much that may have been driving some of this business? And what may happen in the case that we hopefully do get peace in Russia, Ukraine? Yes.

So I mean, I think short term, we don't expect much change in how this business has been performing. There is a couple of things here. First of all, over time, we have tried to balance our portfolio better This defense portfolio is now 60% military application and 40% with the law enforcement, border security as well as National Guard kind of situation and all those needs are increasing actually and we are winning businesses in those areas. As there is more focus on border protection, etcetera. So it's a more balanced portfolio versus just being a defense or military application. That's point number one. Point number two, based on the political climate, we expect NATO countries will actually probably increase their spending on defense and or try to become more self reliant versus relying on US itself to provide the solution. And so we expect that that will that should further help some of this business. And then point number three is that we continue to find new applications beyond defense and military for these kinds of technology, which is specifically in the area of marine and ropes for tugging and building, so over in the ocean. So all those things are the teams are working on and are winning business there.

So diversification of portfolio is also as important in this case where we can find application where this differentiation is appreciated. Sounds promising. Thank you, Ashish.

And our next question will come from Mike Harrison with Seaport Reis.

Hi, good morning. 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 see implementation of the SAP S4HANA system. I guess just help us understand kind of where you were in the implementation process. Was 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. First of all, we our original thinking on this was or the plan was to implement it across our U. S. And Canada sites and in especially on the color side of business, And so there was a multitude of sites that were for Phase one or Cycle one, if you want to say that. And then move to other parts of the world over subsequent phases. And what we realized after about two years of work and as I said a whole bunch of extended timeline and associated costs related with that and resource requirements, they were continuing to creep up as we were going in the process and the project was much more envisioned or thought about So and then what we realized was that In the end, it was very high risk for us to go with in the debt cycle, we realized based on the outcome, it was very high risk for us with the implementation across that multitude of sites that we have originally planned, And so we reduced we thought about reducing the scope and doing it over a fewer number of sites And then after those things came up and the cost and the and data came out on what would it cost to implement there, and the resource requirements it didn't even make sense to go for us to go forward.

So the long and short of your answer is that the cost and resource requirements we're way ahead of what way higher than what we had originally envisioned and the complexity was very high as well. And simultaneously, I would like to point out that there are a lot of new applications that have evolved since started the project because of all the different software and innovation happening in machine learning and artificial intelligence those benefits that we were thinking of realizing with this ERP, we could realize by implementing some of those systems which are lower in cost and easier to implement and can triangulate the same amount similar kind of data, not exactly the same, but similar kind of information and benefits substantially similar so that we don't see any so that we don't lose out on the benefits that we had we had, especially on the price realization side inventory management side and supply chain visibility side. So all those things can be done much faster by implementing certain tools. So we felt it was given where we were in the project based on what it would cost to implement it across the globe, It would be a long time and a lot of dollars required versus what we can do with these small subset programs and realize the benefits in a faster way. [indiscernible] was clear to us that this was the right direction to move.

Thank you for that. And then other question I had was on health Care. It sounds like Health Care 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 start by saying that healthcare was a very strong area of focus for us and also the team delivered double digit growth in 2024 total year.

And then also in Q4, it was double digit growth as well. We saw north of 15% growth numbers both in EMEA and Asia. Also use act was pretty Positive to kind of close to mid single digit growth in Healthcare. And it was driven by both the businesses as you said. In U. S, we saw restocking of certain healthcare Healthcare supplies, medical supplies area, Also, we saw we won some new business around new business with respect to that is trading new business for us. We also saw Some business in Asia come from the new drug delivery devices like this injector pens for diabetes, drugs, etcetera. Which is also a new business for us.

And then finally in EMEA, again, this remote monitoring devices was a new business win for us that we were seeing with that all leading to this double digit kind of growth that we saw in EMEA as well. So overall, I would say it's a mix of new business wins that the team has had in areas that are growing fast, which are remote monitoring devices as well as injector pens. But also winning in the core, which is where we have applications for medical devices as well as restocking happening in the area of medical equipment like nebulizers and BAPRs kind of application. Sounds good. Thank you.

Thank you. And our next question will come from David Wong with Deutsche Bank.

Your line is open. Hi, good morning. Just want to follow-up on defense. Is the base case in '25 still in mid single digit growth? And also, I guess, given the tough comp in 'twenty four and potentially 'twenty five, do you expect defense volumes and earnings That could be down year over year in 2026, or do you think that will be offset by some of the new innovations and new generation of technologies you have here.

Yes. Thanks, David. First, let me just talk about 2025 here. I think mid single digit is the right way to think about it. With respect to to we grew double digit in defense in 2024. So, we grew I believe we grew 14% or so in 2024. So it is a big comp to overcome and I think 5% or so or mid single digits is the right way to think about it. We obviously our teams continue to pick up more wins as they come. And I would say that 2026, similarly, I mean, we it's hard for us to comment this is a lumpy business, so I don't want to speculate on 2020 but all I can tell you is that we are trying to build our pipelines for the future and and a lot of what we will sell in 2026 will be specced in this year. So as the year progresses, we'll have better visibility. But at this point, I think mid single digit kind of a number the right way to think about it.

Got it. And then just back to the guidance, what's the baseline volume assumptions you have embedded in your guidance and guess how much of that will come from new product introductions and I guess which end markets will those come from?

Yes. So I mean just like I mean want to calibrate with respect to guidance. We gave a range and if if you'll take 2020 as a reference point our weighted average real GDP in the regions that we have operate, If you weighed them with the revenue exposure we have to different regions, the real GDP was close to 2.5% or so and we grew organic local currency growth by 4%. So that gives you a feel for that we were doing better. It was all volume or demand driven growth. So it was and I think if in 2025, at least on the paper, the GDP projections are similar. So the data point are midpoint in our guidance is kind of mirroring that part that we should do kind of a similar year as we did in 2024 if the GDP is the same. Of course, this is a different year than last year. The comps are different, but also the environment is different. But given just to give a context, that's where we are at the midpoint. With respect to how much new products, so I think what we should think about is typically if you think about organic currency growth that we've been talking about, that's volume, price and mix.

I think typically in a normal year, if there's nothing uncertain like COVID or something going on, we should be able to use price to offset the inflation. So for us volume and mix should be able to give GDP plus under 200 basis points of growth that we promised at the Investor Day. And that's how we are thinking for our business going forward and that's how the teams are operating. Of course, in that mix is a new product piece that you asked about. And innovation is a key central part of our strategy as you saw on our strategic drivers. So my guess is that it is going to be a significant part of that mix. Part of the new business, all these new businesses that we are winning is coming from innovation. And I think you will continue to see that ramp up more and more as time goes on over our strategic period.

Okay. Thanks. Thank you.

And our next question will come from Michael Sison with Wells Fargo. Your line is open. Hey, good morning. Nice end of the year.

It looks like FX will be around a 5% headwind in 25% or 2024. I think you noted that 60% of your sales are overseas. Seems like the new administration wants to bring more manufacturing is that given your mix of businesses, is that a positive or negative longer term? [indiscernible] Let me just answer this way. I mean, if you look at our two businesses, CAI and SEM, SEM is 55% U. S.-based, and CAI is 33% or so U. S. Based. So the exposure of CAI business for the color business to FX changes is higher than on the SEM side. And so and that business is very local. We have to play very close to the customer because of response time on that business is of a few days ten to twenty days maximum And so if you are working with that kind of scenario, you cannot really bring that color part very far away from where the customer is. So I think on the CAI side, FX is going to be continuing to be a strengthen On the SCM side, it's more a business which is backed in like defense and all where we have a higher pricing power, so to say, and innovation going on.

So overall, FX exposure is quite large compared to other U. S. Companies. As you said, 60% of our business is outside U. S. And that's depending on which way the dollar goes, one way or another, we could benefit or be a headwind. In 2025, certainly, it's a headwind and maybe Jamie, you can quantify that on EPS side on how much headwind is we're looking at for 2025?

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, around $15,000,000 for what we see today.

And obviously, things are dynamic with regards to what's going on in the world specifically with tariffs and reciprocal 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, it's less than 5% of our sales. However, how does that going to actually impact demand if inflation takes off is really what's unquantifiable to point. And it's another reason why we're a little bit more cautious in our guidance because we're not sure how that's going to ultimately impact buying behavior.

And it's just the other part of the question, Ashish, if there's more manufacturing into The U. S, is that a net positive? [indiscernible] I think it should be. I mean, because we would be less exposed to FX and honestly, it's easy for us to move our supply chains Really, it relies on our customers. Our exposure from a tariffs perspective and RM exposure perspective is very less as Jamie said in her prepared remarks. So that's really not an issue for us. I think we can serve our customers faster without being exposed to FX if the manufacturing moves here more. [indiscernible] Got it. And then just curious on a lot of the folks who have reported have talked about Europe being continues to be really sluggish, if you will.

Any thoughts just on Europe, it's a big part of your sales. How is it sort of doing now and and what are the ranges of outcomes for that region do you think could happen in 2025?

Yes. So So I just want to start by saying that on an organic revenue growth perspective, had positive growth printed in Europe EMEA for the last three quarters in a row now. And it has overall Q1 was a negative growth there and that's why overall for the year we ended up plus 1%. But for the last three quarters we've been winning in Europe, I think we on our organic local currency basis, we should continue to drive on the color side, we should continue to drive growth there. I think on the SEM side, it depends on a lot of things, including defense and other parts of the business. That whether you know I guess what I'm trying to say is on it's more clear for us on the CAI side to drive organic growth there On the SEM side, it could be a little bit lumpy one way or another. And so but when you look at it from 2025 perspective, the GDP expectations of that region are close to 1.3%, 1.4%. Based on our revenue exposures And so that's much better than what they were last year, which was 0.8% or 0.9%. So I'm expecting that our teams will do better this year in Europe than they did last year.

Based on just the GDP projections.

Got it. Thank you.

And our next question will come from Vincent Andrews with Morgan Stanley. Your line is open. Hi, this is Steve Haines 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, kind of you touched on volume before, but maybe just from the margin side of it, how we should be thinking about that? Thank you.

Yes. I would say that guidance that we presented today really represents our best view based on the macro dynamics that are there. Ashish mentioned real broadly on how we expect volume to evolve over that timeframe and especially with some of the macro dynamics that could influence that. From a margin expansion, we do expect to expand margins Similar to what we had mentioned during our Investor Day, we're expect to get operating leverage from the increase some mix impact based on the innovation that we expect to continue to grow in excess [indiscernible] And then lastly, some productivity measures that are also in flight So we do expect some margin expansion. I would say expectations on a year over year basis be in that 25% to 75 bps that are out there. Maybe another piece to consider is that we do expect inflation to continue roughly about 2% or so as we go forward. On the raw material side, but we do expect to offset that with pricing as needed. Hopefully, that gives a little bit more color of how we expect the EBITDA and EPS to follow through.

Yes. Thank you. And our next question comes from Kristen Owen with Oppenheimer.

Your line is open.

Good morning. Thank you for taking the question. She mentioned in your prepared remarks January, you started a new compensation strategy.

Really related to taking these bigger shots on goals 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 that incentive structure to? And how should we as sort of the outsiders be tracking those KPIs?

Yes.

I mean, I think it's as I said, January was just last month. So it's we have been pushing it down like from mid January, we rolled it out and so the communication has been going out. So far there is has been quite positive. Of course, we have not seen it's too early to say the results and so on and so forth. So I won't comment on that part right now, Kristen. I think the big thing that we made the change was that we had done extensive portfolio prioritization and based on that, different businesses were in different buckets. We had businesses that had to grow faster much faster than the the macro was. There were businesses that would be growing GDP plus and then there were businesses that we expect to drive more income and focus more on cash generation versus growth. And so the new incentive plan kind of drives those behaviors and rewards each of those businesses differently versus having one standard package for the entire company. And I think that's a big difference. So So So based on what the business is supposed to drive, that's the primary KPI or metric we have set it for that business.

Whether it's sales growth or operating income growth or whatever the case might be, And of course, at a company level, there is part in the metrics which everybody has to deliver because there's a level contribution at that level. So that Apart from driving their own businesses, they're also helping the company drive what the whole company Right. It's a balance of those things. It's a little bit more complex plan than what we had previously, but I think it's the right plan and it's a more customized plan for each businesses where they are on the lifecycle of their portfolio.

Thank you for that color. My second question sort of relates to that cash generation piece of this. Just an update maybe Jamie on the free cash flow outlook just from an EBITDA growth perspective but also in line with the decision to pause the ERP spend? Yes.

Absolutely. So from a free cash flow perspective, range that we're anticipating at this point is between $180,000,000 and $200,000,000 Some of the key components of that would be, as you mentioned, earnings growth. So assuming the midpoint of the range, that's about a $20,000,000 increase on a year over year basis. You may have also seen in our release and the attachments that we also expect to receive insurance proceeds from one of our environmental sites in the first quarter, which will also be a tailwind as we go into 2025. The net of that on a year over year basis should be approximately $40,000,000 And then the other piece to think about is that we do have an incentive payout that was different than '24 versus '25 and that will be a headwind. Some of those parts really get you to $180,000,000 to $200,000,000 on a year over year basis.

Okay. Anything on the CapEx?

Sorry.

We expect about $120,000,000 or so. We're still evaluating that number because we want to make sure that mentioned, we're really focused on growing the top line That's in our estimate at this juncture. It may swing a little bit depending on what growth factors that we plan to fund this year. And that would be partially offset by I'm sorry, funded by some of the CapEx avoidance from the S-four project that we had mentioned before.

Great.

Thank you so much.

And our final question will come from Laurence Alexander with Jefferies. Your line is open. Hey, good morning. 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 and pretty strong growth much higher than the GDP and and most of our business there is for local.

About 30% goes outside for export.

So we are seeing pretty good growth there and I think Q1 should be also growing quite well. We are also gaining ground in some of the new technologies of semiconductor, and servers for digital you hear all this noise about AI and everything and we are a small part of of that and playing into that with some of the customers putting the servers together. So we are getting into digital economy in China as well, Greater China area, but also Southeast Asia, which is a big hub for digital And so I think from that perspective, I expect good growth in China Greater China area and Southeast Asia going forward, which is about 80% of our Asia sales is Southeast Asia and China.

Got it. And then just on auto, Yes. Auto, continue to grow. We had very good growth in transportation area in China in Q4 closed to 20%. Year over year and I think EV market there is still in Q1 positive. Although we did not see the same story in USAC and EMEA. But in China, EVs continue to grow and and so we are continuing to [indiscernible] into that and winning business there. So I would say little slower in EV production versus last year. But still I would say around mixing Understood. Thank you.

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