Cabot Corporation

Good morning, ladies and gentlemen, and welcome to the third quarter Cabot in Earnings conference call. At this time, all participants are in a listen on the note. Later, we will conduct question and answer session, and instructions will follow at the time. If anyone should require assistance during the conference, please press star, then zero on your touchstone telephone. As a reminder, this conference call is being recorded. I would now like to turn the conference over to your host, Mr. Steve Delahunt, Vice President, Treasurer and Investor Relations. Please go ahead.

Thank you, Jerome, and good morning. I'd like to welcome you to the Cabot Corporation Earnings Teleconference. With me today are Sean Cohane, CEO and President, and Erica McLaughlin, Senior Vice President and CFO. Last night, we released results for our third quarter of fiscal year 2021, copies of which are posted in the investor relations section of our website. The slide deck that accompanies this call is also available in the investor relations portion of our website and will be available in conjunction with the replay of the call. During this conference call, we will make forward-looking statements about our expected future operational and financial performance. Each forward-looking statement is subject to risks and uncertainties that would cause actual results to differ materially from those projected in such statements. Additional information regarding these factors appears under the heading Forward-Looking Statements in the press release we issued last night and in our annual report on Form 10-K for the fiscal year ended September 30, 2020, and in subsequent filings we make with the SEC, all of which are also available on the company's website. In order to provide greater transparency regarding our operating performance, we refer to certain non-GAAP financial measures that involve adjustments to GAAP results. Any non-GAAP financial measures presented should not be considered to be an alternative to financial measures required by GAAP. Any non-GAAP financial measures referenced on this call are reconciled to the most directly comparable GAAP financial measure in a table at the end of our earnings release issued last night and available in the investor relations section of our website. I will now turn the call over to Sean Cohane, who will discuss the key highlights of the company's performance. Erica McLaughlin will review the business segment and corporate financial details. Following this, Sean will provide closing comments and open the floor to questions. Sean?

Thank you, Steve, and good morning, ladies and gentlemen, and welcome to our third quarter 2021 earnings conference call. I'm very pleased with our results this quarter as we generated adjusted earnings per share of $1.35. This marks the second strongest quarterly earnings performance in the company's history. Demand across all businesses were strong, and we continue to leverage our global network of plants to serve our customers while managing the persistent challenges related to the COVID-19 pandemic and disruptions in international transportation and logistics markets. I am very proud of the entire Cabot team for demonstrating great operating discipline across all aspects of our business and for their resilience in this very dynamic environment. Our culture of teamwork and our commitment to commercial and operational excellence serves as the foundation for our strong performance. While raw material markets remained somewhat volatile during the quarter, we were successful in implementing price increases to maintain robust margins. I am also very excited about our continued progress across our portfolio of targeted growth initiatives, particularly in the battery application. I believe the battery market presents one of the most compelling new growth opportunities for the materials sector, and our strategic investments over the last several years have positioned Cabot very well to capitalize on this unique opportunity. Our energy materials business continued to build strong momentum in the quarter, as we achieved qualification milestones and began commercial sales to an additional two of the global electric vehicle battery leaders. The top eight EV battery producers represent approximately 90% of the industry, and we now have commercial sales to sixth of these top eight manufacturers. In addition, we are supplying conductive carbon additives to the top five EV battery producers in China. The Cabot value proposition to the battery market is based on three factors. First, the breadth of our product line of conductive carbon additives, including conductive carbon blacks, carbon nanotubes, carbon nanostructures, and blends of conductive carbon additives. Second, the depth of our application knowledge in our global research and development centers allow us to tailor products for our customers and respond quickly in this fast-changing environment. And finally, our global footprint of manufacturing plants and our sales and technical service support. As battery producers expand their manufacturing footprints outside of Asia to support auto OEMs with robust regional supply chains, we see the value of our global footprint becoming even more important for our customers. We believe these capabilities represent a compelling differentiator for Cabot and position our company as a key supplier and innovator to the leading battery manufacturers. Transitioning now to cash, operating cash flow in the quarter was $71 million and $157 million year-to-date. While EBITDA generation has been very strong, conversion to operating cash has been impacted somewhat by higher oil prices. which contributed to over $100 million of the net working capital increase year to date. While oil price volatility can create short-term fluctuations in working capital balances, history has shown that over the long term, oil-driven working capital fluctuations tend to balance out. Given the size and strength of our balance sheet, we can easily absorb these changes in working capital without impacting our long-term capital allocation priorities. As oil prices stabilize, we expect to see a greater level of conversion of our strong EBITDA to operating cash flow. The strength of the balance sheet and our cash flow is reflected in our investment-grade credit rating. This has long been a priority for us and we remain committed to this posture. We recently closed on a new $1 billion ESG-linked credit facility, which replaces our existing credit facility that was due to mature in October of 2022. The facility includes two ESG metrics centered around our annual sulfur dioxide and nitrogen oxide emission reduction goals. This agreement represents one of the first ESG-linked credit facilities in the chemical industry and further reinforces our commitment to sustainability. The facility matures in August of 2026, with key terms largely the same as our prior facilities. In addition, during the quarter, we released our 2020 Sustainability Report, which provides enhanced transparency on our environmental, social, and governance priorities. ESG leadership is central to our strategy, and the interactive digital report summarizes our progress and accomplishments. Overall, we had a very strong quarter in terms of financial performance and progress against strategic objectives. I will now turn the call over to Erica to discuss the financial results of the quarter in more detail. Erica?