Cabot Corporation

23 earnings conference call. At this time, all participants are in a listen-only mode. After the speaker presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 1-1 on your telephone. To remove yourself from the question queue, press star 1-1 again. I would now like to hand the call over to Vice President, Treasurer, Investor Relations, Steve Delat. Please go ahead.

Good morning. I would like to welcome you to the Catholic Corporation Earnings Teleconference. With me today are Sean Cohane, CEO and President, and Erica McLaughlin, Executive Vice President and CFO. Last night, we released results for our second quarter of fiscal year 2023, 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 could cause actual results to differ materially from those projected in such statements. Additional information regarding these factors appears in the press release we issued last night and in our 10-K for the fiscal year ended September 30, 2022. 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. The 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 section of our website. I will now turn the call over to Sean, who will discuss the second quarter highlights, including progress against our sustainability strategy and an update on our battery material business. Eric will review the company and business segment results along with some corporate financial details. Following this, Sean will provide a strategic summary and closing comments and open the floor to questions. Sean?

Thank you, Steve. Good morning, ladies and gentlemen, and welcome to our call today. I am pleased with results in the second quarter and the tremendous effort of the Cabot team to execute against the challenging macroeconomic backdrop. In the second fiscal quarter, we delivered adjusted earnings per share of $1.33 in line with our expectations and up 35% sequentially. Reinforcement materials delivered a record quarter with EBIT up 21% year over year. The outlook for this business remains strong, driven by our leading market position, the long-term resilience of the replacement tire market, and favorable structural dynamics in this business. The performance chemical segment had a challenging quarter, as we experienced lower demand in China due to significant levels of COVID outbreak, softness in key end markets, and continued inventory destocking. As expected, cash flow was strong in the quarter, with operating cash flow of $162 million and free cash flow of $111 million, of which we returned $37 million to shareholders through dividends and share repurchases. Given the strength of our underlying business fundamentals and conviction in the long-term cash flow generation of our portfolio, yesterday we announced an 8% increase in our quarterly dividends. Cabot has a long history of growing the dividend, and it would be our expectation to continue increasing the dividend over time as the earnings and cash flow of our business grow. On the strategic front, we continue to make important long-term progress in battery materials, with volumes growing 45% in the quarter despite a sharp sequential slowdown in electric vehicle sales in the March quarter. Additionally, we secured another key customer win in the quarter, and now have sales to nine of the top 10 global battery manufacturers. Diving a bit deeper into battery materials, the electrification of mobility represents a significant growth opportunity for Cabot, and we continue to invest behind this macro trend. While we believe the long-term trend of electric vehicle penetration is undeniable, market developments from quarter to quarter can be uneven. This is certainly what the electric vehicle sector experienced in the March quarter. Electric vehicle sales declined sequentially by 27% in the March quarter, driven principally by COVID impacts in China and a sharp decline in prices of key raw materials for batteries, such as lithium carbonate, which drove a sharp destocking across the industry value chain. While Cabot's volumes for battery materials continue to reflect strong year-over-year growth of 45%, sequential sales volumes decreased by 11%. We expect these impacts to be short-term in nature and anticipate sequential improvement in the coming quarters in line with the Bloomberg EV forecast. So far through April, our volumes are aligned with this improving trend. The temporary loss of market momentum sequentially in the second quarter and the projection for recovery of EV sales over the next two quarters puts us behind where we expected to be year to date in sales volumes for battery materials. Additionally, we are seeing some delays in battery production scale-up of a key U.S. auto OEM. Based on these factors and our continued investment profile to support long-term growth, We now anticipate fiscal year 2023 EBITDA to be in the range of 30 to 35 million for battery materials. We continue to believe that electrification will transform the mobility sector and are very pleased with our commercial progress to date. We've been qualified and are selling commercially to nine of the top 10 battery producers and are well positioned with key auto OEMs as they build out battery production capability. Cabot's value proposition, built on our unique product breadth, global footprint, and ability to scale capacity to meet the industry's regionalization needs is resonating with customers. While the growth pathway may be uneven at times, we are investing to win over the long term and remain confident in our investor day projections of 50% plus EBIT growth between 2021 and 2024. Sustainability is at the core of our purpose and our Creating for Tomorrow strategy, and during the quarter, we made important progress on several strategic fronts. At the recent Tire Technology Expo in Hanover, Germany, we launched our Evolve Sustainable Solutions technology platform, which is focused on advancing sustainable reinforcing carbons. Our goal through this technology platform is to develop products for our customers that offer sustainable content with reliable performance and importantly, at industrial scale. We plan to do this by leveraging circular value chains and materials recovered from end-of-life tires, using renewable or bio-based materials, and enabling processes that reduce greenhouse gas emissions. As part of the Evolve platform, we also launched Cabot's first ISCC Plus certified solutions. which are enabling our tire customers to bring demonstration products to the market made from circular materials. Our market leadership, global footprint, and broad Evolve and E2C technology platforms position Cabot to partner and win with leading customers as the mobility sector transitions to meet society's sustainability demands. In addition, last week we announced the launch of our new Entera Aerogel Particles portfolio. Interra aerogel particles are a thermal insulation additive targeted for thermal barrier solutions for electric vehicle lithium ion batteries. We believe thermal management will be an important design feature of safe batteries and expect there will be a variety of application forms that serve this market. Cabot's aerogel products provide customers with formulation flexibility to develop very thin forms, including blankets, pads, sheets, films, foams, and coatings. Over time, we believe that aerogel solutions can develop into a meaningful addition to our battery materials addressable market and further position Cabot as a critical material supplier to support the global transition to vehicle electrification. And finally, our sustainability leadership continues to gain recognition from leading ESG rating services. Most recently, Cabot received a platinum rating from EcoVedas. the highest recognition available for the third consecutive year. The platinum rating recognizes Cabot's environmental, social, and governance efforts and places Cabot among the top 1% of companies assessed by EcoVedas. EcoVedas is one of the world's leading sustainability ratings platforms and one that many of our customers rely on to evaluate their supply chains. I'll now turn the call over to Erika to discuss the segment and financial performance. Erika?