Avient Corp: Form 10-Q for the period ended Mar 31, 2025

Our Business

We are an innovator of materials solutions to help our customers succeed, while enabling a sustainable world. Our products include specialty engineered materials, performance fibers, advanced composites, and color and additive solutions. We are also a highly specialized developer and manufacturer of performance enhancing additives, liquid colorants and silicone colorants. Headquartered in Avon Lake, Ohio, we have manufacturing sites, research and development facilities, design centers and warehouses around the globe. We provide value to our customers through our ability to link our knowledge of polymers and materials science with our manufacturing and supply chain capabilities to provide value-added solutions to designers, assemblers and processors of materials. When used in this Quarterly Report on Form 10-Q, the terms “we,” “us,” “our,” “Avient” and the “Company” mean Avient Corporation and its consolidated subsidiaries.

Results of Operations — The three months ended March 31, 2025 compared to the three months ended March 31, 2024:

(Dollars in millions, except per share data)

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Sales

Sales decreased $2.4 million, or 0.3%, for the three months ended March 31, 2025. Unfavorable foreign currency impacts were 2.1%, while sales, excluding the impacts of foreign exchange, increased 1.8%. The sales increases were primarily within the packaging and healthcare end markets, partially offset by declines in the transportation and defense end markets.

Gross Margin

Gross margin as a percentage of sales was 31.8% for the three months ended March 31, 2025 compared to 33.6% for the three months ended March 31, 2024. This decrease was driven primarily by higher restructuring charges of $7.7 million and the mix impacts of lower defense sales.

Selling and administrative expense

Selling and administrative expense increased $78.3 million for the three months ended March 31, 2025, primarily driven by an impairment charge of $71.6 million associated with the Company's decision to cease development of the cloud-based enterprise resource planning system, S/4HANA, and charges of $14.7 million associated with unpaid contractual obligations for hosting fees. Offsetting these charges was lower compensation cost for the three months ended March 31, 2025 and unfavorable foreign currency impacts.

Interest expense, net

Interest expense, net increased $0.3 million for the three months ended March 31, 2025, primarily due to the write-off of unamortized issuance costs associated with refinancing our senior secured term loan in March 2025, partially offset by the benefit of reduced interest rates resulting from previous refinancing activity.

Income taxes

During the three months ended March 31, 2025, the Company’s effective tax rate resulted in a benefit of 25.2% versus an expense of 25.3% for the three months ended March 31, 2024. The income tax benefit was due to a pre-tax loss in the first quarter of 2025, which was driven by the Company's cloud-based enterprise resource planning system impairment. During the three months ended March 31, 2025, the 25.2% income tax benefit was higher than the U.S. federal rate of 21.0% due to the state and local tax benefit of the pre-tax loss. During the three months ended March 31, 2024, the Company's effective tax rate of 25.3% was above the U.S. federal rate of 21.0% primarily due to foreign withholding tax, tax on global intangible low-taxed income, non-deductible items, and an increase in foreign valuation allowances. These unfavorable items were partially offset by the U.S. research and development credit.

SEGMENT INFORMATION

Avient has two reportable segments: (1) Color, Additives and Inks; and (2) Specialty Engineered Materials.

Operating income is the primary segment performance measure that is reported to our chief operating decision maker (CODM), which is the Company's chief executive officer, for purposes of allocating resources and assessing performance. Operating income at the segment level does not include corporate general and administrative expenses that are not allocated to segments, restructuring charges, share-based compensation costs, environmental remediation costs and associated recoveries, asset impairments, acquisition-related charges, mark-to-market adjustments on pension and other post-retirement obligations, and certain other items that are not included in the measure of segment profit or loss that is reported to and reviewed by our CODM. These costs are included in Corporate.

Sales and Operating Income — The three months ended March 31, 2025 compared to the three months ended March 31, 2024:

(Dollars in millions)

Color, Additives and Inks

Sales increased $4.4 million, or 0.9%, in the three months ended March 31, 2025 compared to the three months ended March 31, 2024. Unfavorable foreign currency impacts were 2.4%, while sales, excluding the impacts foreign exchange, increased 3.3%. The sales increase was primarily within the packaging and building and construction end markets, partially offset by declines in the transportation end market.

Operating income increased $3.8 million, or 5.1%, in the three months ended March 31, 2025, primarily driven by increased sales and improved mix, which more than offset unfavorable foreign currency impacts.

Specialty Engineered Materials

Sales decreased $6.0 million, or 1.9%, in the three months ended March 31, 2025 compared to the three months ended March 31, 2024. Unfavorable foreign currency impacts were 1.5%, while sales, excluding the impacts of foreign exchange, decreased 0.4%. The sales decrease was primarily within the transportation and defense end markets, which more than offset an increase within the healthcare end market.

Operating income decreased $6.3 million, or 11.8%, for the three months ended March 31, 2025, primarily driven by the impacts of foreign exchange and lower sales along with unfavorable margin impact associated with lower defense sales.

Corporate

Corporate costs increased $90.8 million for the three months ended March 31, 2025, primarily driven by an impairment charge of $71.6 million associated with the Company's decision to cease development of the cloud-based enterprise resource planning system, S/4HANA, charges of $14.7 million associated with unpaid contractual obligations for hosting fees, and increased restructuring costs of $12.1 million. Partially offsetting these charges was lower compensation cost for the three months ended March 31, 2025

Liquidity and Capital Resources

Our objective is to finance our business through operating cash flow and an appropriate mix of debt and equity. By laddering the maturity structure, we avoid concentrations of debt maturities, reducing liquidity risk. We may from time to time seek to retire or purchase our outstanding debt with cash and/or exchanges for equity securities, in open market purchases, privately negotiated transactions or otherwise. We may also seek to repurchase our outstanding common shares. Such repurchases, if any, will depend on prevailing market conditions, our liquidity requirements, contractual restrictions and other factors. The amounts involved have been and may continue to be material.

The following table summarizes our liquidity as of March 31, 2025 and December 31, 2024:

(In millions)

As of March 31, 2025, approximately 71% of the Company’s cash and cash equivalents resided outside the United States.

Expected sources of cash needed to satisfy cash requirements for 2025 include our cash on hand, cash from operations and available liquidity under our revolving credit facility, if necessary. We believe that these sources will also provide sufficient liquidity to satisfy our expected uses of cash for at least the next twelve months and the foreseeable future thereafter. Expected uses of cash for 2025 include interest payments, cash taxes, dividend payments, environmental remediation payments and capital expenditures.

Cash Flows

The following describes the significant components of cash flows from operating, investing and financing activities for the three months ended March 31, 2025 and 2024.

Operating Activities — Net cash used by operating activities increased $8.3 million during the three months ended March 31, 2025 compared to the three months ended March 31, 2024, driven primarily by higher incentive compensation payments and increased working capital, partially offset by insurance proceeds of $34.0 million for previously incurred losses at the Calvert City site.

Investing Activities — Net cash used by investing activities during the three months ended March 31, 2025 and 2024 of $12.5 million and $24.5 million, respectively, primarily reflects the impact of capital expenditures.

Financing Activities — Net cash used by financing activities for the three months ended March 31, 2025 and 2024 of $28.3 million and $28.1 million, respectively, primarily reflects the impact of dividends paid.

Debt

As of March 31, 2025, aggregate maturities of the principal amount of debt for the current year, next four years and thereafter, are as follows:

(In millions)

On March 12, 2025, the Company refinanced its senior secured term loan by amending the credit agreement governing such term loan (the Term Loan Amendment). The Term Loan Amendment reduced the interest rate per annum by 25 basis points, which now is either (i) Adjusted Term SOFR (as defined in the Term Loan Amendment) plus 1.75%, or (ii) a Base Rate (as defined in the Term Loan Amendment) plus 0.75%. The maturity date and other terms and conditions are substantially the same as the terms and conditions under the credit agreement immediately prior to the Term Loan Amendment.

As of March 31, 2025, we were in compliance with all financial and restrictive covenants pertaining to our debt. For additional information regarding our debt, please see Note 7, Financing Arrangements, to the accompanying condensed consolidated financial statements.

Derivatives and Hedging

We are exposed to market risks, such as changes in foreign currency exchange rates and interest rates. To manage the volatility related to these exposures we may enter into various derivative transactions. For additional information regarding our derivative instruments, please see Note 8, Derivatives and Hedging, to the accompanying condensed consolidated financial statements.

Material Cash Requirements

We have future obligations under various contracts relating to debt and interest payments, operating leases, pension and post-retirement benefit plans, purchase obligations and environmental remediation obligations. During the three months ended March 31, 2025, there were no material changes to these obligations as reported in our Annual Report on Form 10-K for the year ended December 31, 2024.

CAUTIONARY NOTE ON FORWARD-LOOKING STATEMENTS

In this Quarterly Report on Form 10-Q, statements that are not reported financial results or other historical information are “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements give current expectations or forecasts of future events and are not guarantees of future performance. They are based on management’s expectations that 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. You can identify these statements by the fact that they do not relate strictly to historic or current facts. They use words such as "will," “anticipate,” “estimate,” “expect,” “project,” “intend,” “plan,” “believe” and other words and terms of similar meaning in connection with any discussion of future operating or financial condition, performance and/or sales. In particular, these include statements relating to future actions; prospective changes in raw material costs, product pricing or product demand; future performance; estimated capital expenditures; results of current and anticipated market conditions and market strategies; sales efforts; expenses; the outcome of contingencies such as legal proceedings and environmental liabilities; and financial results. Factors that could cause actual results to differ materially from those implied by these forward-looking statements include, but are not limited to:

• disruptions, uncertainty or volatility in the credit markets that could adversely impact the availability of credit already arranged and the availability and cost of credit in the future;
• the effect on foreign operations of currency fluctuations, tariffs and other political, economic and regulatory risks;
• disruptions or inefficiencies in our supply chain, logistics, or operations;
• changes in laws and regulations in jurisdictions where we conduct business, including with respect to plastics and climate change;
• fluctuations in raw material prices, quality and supply, and in energy prices and supply;
• demand for our products and services;
• production outages or material costs associated with scheduled or unscheduled maintenance programs;
• unanticipated developments that could occur with respect to contingencies such as litigation and environmental matters;
• our ability to pay regular quarterly cash dividends and the amounts and timing of any future dividends;
• information systems failures and cyberattacks;
• our ability to service our indebtedness and restrictions on our current and future operations due to our indebtedness;
• amounts for cash and non-cash charges related to restructuring plans that may differ from original estimates, including because of timing changes associated with the underlying actions;
• other factors affecting our business beyond our control, including without limitation, changes in the general economy, changes in interest rates, changes in the rate of inflation, geopolitical conflicts, tariffs and any recessionary conditions; and
• other factors described in our Annual Report on Form 10-K for the year ended December 31, 2024 under Item 1A, “Risk Factors.”

We cannot guarantee that any forward-looking statement will be realized, although we believe we have been prudent in our plans and assumptions. Achievement of future results is subject to risks, uncertainties and assumptions. Should known or unknown risks or uncertainties materialize, or should underlying assumptions prove inaccurate, actual results could vary materially from those anticipated, estimated or projected. Investors should bear this in mind as they consider forward-looking statements. We undertake no obligation to publicly update forward-looking statements, whether as a result of new information, future events or otherwise, except as otherwise required by law. You are advised, however, to consult any further disclosures we make on related subjects in our reports on Forms 10-Q, 8-K and 10-K filed with the Securities and Exchange Commission. You should understand that it is not possible to predict or identify all risk factors. Consequently, you should not consider any such list to be a complete set of all potential risks or uncertainties.

There have been no material changes to exposures to market risk as reported in our Annual Report on Form 10-K for the year ended December 31, 2024.

Disclosure controls and procedures

Avient’s management, under the supervision of and with the participation of its Chief Executive Officer and its Chief Financial Officer, has evaluated the effectiveness of the design and operation of Avient’s disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as of the end of the period covered by this Quarterly Report. Based upon this evaluation, Avient’s Chief Executive Officer and Chief Financial Officer have concluded that, as of the end of the period covered by this Quarterly Report, its disclosure controls and procedures were effective.

Changes in internal control over financial reporting

There were no changes in Avient’s internal control over financial reporting during the quarter ended March 31, 2025 that materially affected, or are reasonably likely to materially affect, its internal control over financial reporting.

We face a number of risks that could adversely affect our business, results of operations, financial position or cash flows. A discussion of our risk factors can be found in Item 1A, Risk factors, in our Annual Report on Form 10-K for the fiscal year ended December 31, 2024. Except for below, as of March 31, 2025, there have been no material changes to the risk factors that were previously disclosed.

Changes to foreign trade policy, including new or increased tariffs and changing import/export regulations, could adversely affect our operating results, and the impacts could be material.

Changes in foreign trade policy, regulatory or economic conditions or in laws governing international trade could materially adversely affect our business. The U.S. has instituted certain changes, and may propose additional changes, in trade policies that include the negotiation or termination of trade agreements, the imposition of higher tariffs on goods exported from the U.S. or imported into the U.S., and other government regulations affecting trade between the U.S. and other countries (such as Canada, Mexico, China, and the European Union) where we conduct our business. Global trade disruption or significant introduction of trade barriers, together with any future downturns in the global economy, could further materially and adversely affect our financial performance.

As a result of policy changes and government proposals, there may be greater restrictions and economic disincentives on international trade. The new tariffs and other changes in U.S. trade policy have triggered retaliatory actions by affected countries, and foreign governments have instituted or are considering imposing tariffs and trade sanctions. Such changes have the potential to adversely impact the global economy, our industry and the global demand for our products, and as a result, could have a negative impact on our business, financial condition and results of operations.