Cabot Corporation

Hello, and welcome to the Q4 2023 Cabot 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 11 on your telephone. You will then hear an automated message advising that your hand has been raised. To withdraw your question, please press star 11 again. Please be advised that today's conference is being recorded. It is now my pleasure to introduce Vice President, Treasurer, and Investor Relations, Steve Delahunt.

Thank you, Andrew, and good morning. I would like to welcome you to the Cabot 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 fourth 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 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, 2022, and in subsequent filings we make with the SEC, all of which are 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 section of our website. Also, as we typically do each year, I'd like to remind you that over the next several weeks, in connection with investing in restricted stock awards issued under our long-term incentive equity program, officers of the company will be selling shares to pay tax and other obligations related to their rewards. I will now turn the call over to Sean, who will discuss the full year highlights, including an update on the reinforcement materials segment, our capital allocation for fiscal 2023, and our continued leadership and sustainability. Erica will review the corporate financial details, business segment results, and our cash flow outlook and priorities for fiscal 2024. 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. Fiscal year 2023 was characterized by a turbulent macroeconomic and geopolitical environment, but it was a year in which the enduring strengths of the Cabot portfolio were exhibited. We executed well and built momentum as we moved through the year, positioning us for a successful 2024. We delivered the second highest adjusted earnings per share in the company's history of $5.38, grew the reinforcement materials segment to a record EBIT of $482 million with EBITDA margins of 22% and generated over $350 million of free cash flow. In the year, we returned $186 million to shareholders through a combination of share repurchases and dividends. And finally, we made significant progress against our sustainability ambition and continue to demonstrate our industry leadership. I am immensely proud of the CABA team for the resilience and agility they demonstrated throughout the year and for their focus on execution in support of our customers. Turning now to our fiscal 2023 results, segment EBIT declined 5% year-over-year, largely due to lower volumes, as we saw prolonged destocking in both segments and weekend market demand, especially in the performance chemical segment. Price and mixed benefits net of costs contributed significantly to year-over-year results, driven by the reinforcement materials segment, as we realized improved pricing and product mixed benefits from the 2023 customer agreements. The stronger U.S. dollar had a negative impact in the year due to the translation of weaker foreign currencies back into dollars. The largest impact came from the euro, Japanese yen, and Chinese renminbi. While total segment EBIT was down only modestly at 5%, adjusted earnings per share declined by 14% due to higher net interest expense from the rising rate environment, a higher operating tax rate, and currency headwinds. I want to take a moment to talk about the reinforcement materials segment. This business not only achieved record EBIT in 2023, but I believe it is a structurally changed business compared to a decade ago. KABIT is a global leader in reinforcing carbons with a unique global footprint, leading technology, and a long-standing commitment to sustainability. The KABIT business model is largely a make and sell in-region business. This is driven by economic fundamentals, but also by the importance that our customers place on regional supply security. While this has long been the case, the importance of supply security has become even more pronounced given how rising geopolitical tensions have stressed many global supply chains. The key end markets in this segment are replacement tires and auto OE production. You will recall that replacement tires account for approximately two-thirds of segment volume, with auto OE production and industrial applications driving the balance. The EBIT performance in this segment has increased dramatically over the past eight years, supported by the long-term resilience of the replacement tire market and an increasingly tight supply-demand balance in the mature regions. We expect that utilizations in Europe will become even tighter this year as Russian Carbon Black, which has historically been a significant supplier to the European region, will be subject to sanctions starting in July of 2024. Furthermore, I believe that we have structurally improved our performance through a commitment to commercial and operational excellence across the company. The industry is also facing stricter environmental regulations that are requiring producers to make significant abatement investments to ensure reliable and sustainable supply to our customers. These investments raise the barriers to entry for additional capacity, roughly doubling the cost of new capacity. and require recovery in the form of price increases. As a result of these factors, I believe the outlook for this business remains strong, underpinned by favorable long-term demand drivers and a growing requirement for innovation to meet our customers' sustainability needs. Miles Driven has been remarkably resilient over the long term, and the global car park is forecast to continue to grow. both of which are expected to support our outlook for a consistently growing base of earnings and cash flow to fund our capital allocation priorities. Moving now to capital allocation highlights. The Cabot portfolio has robust cash flow characteristics, and in fiscal 2023, we generated very strong operating cash flow of $595 million, which allowed us to fund our balanced set of capital allocation priorities. Capital expenditures in the year were $244 million, which included approximately $143 million of maintenance and compliance capital, with the balance funding our high-confidence, high-return growth projects. Our growth projects in 2023 were focused on the growth factors of battery materials and inkjet, as well as productivity investments across our businesses. In addition to funding our capital plan, we returned $186 million to shareholders during the year. We've maintained a continuous and growing dividend since 1968, which is the year the company went public, and that commitment remains a core part of our capital allocation priorities. We paid $88 million in dividends in fiscal year 2023, including an 8% increase in May, reflecting our confidence in the long-term cash flow outlook for the company. We would expect to continue to raise the dividend over time as our earnings grow. We also repurchased 98 million of shares in fiscal 2023. We have communicated in the past that we plan to offset dilution each year, which is roughly $20 million annually, and we will be opportunistic with additional repurchases based on our outlook for cash flow and the timing of alternative investment opportunities. This is what transpired in 2023 as our strong cash flow generation enabled repurchases in excess of dilution. Given the strength of the cash flow, we are also able to reduce debt by $179 million. Reducing debt is not a core priority of our capital allocation strategy, but rather is more of a temporary use of cash to reduce interest expense until the cash is needed to fund our growth investments. We remain committed to our long-term investment grade credit rating as it affords us consistent access to the capital markets. Now turning to sustainability. In June of this year, we published our 2023 sustainability report, which highlighted our recent performance and advancements toward our 2025 sustainability goals, as well as our vision for creating a more sustainable world. At that time, we had achieved five of our 2025 sustainability goals ahead of schedule, while the others remain on track. Included in the five goals that we have achieved is our goal to export 200% of the energy that we import. I believe that this goal is an excellent example of our commitment to circularity by using the waste energy in our manufacturing process to produce cogeneration power, which is CO2 free. CAPIT has long been a leader in sustainability and been recognized by external parties for our leadership and excellence. Fiscal year 2023 represented another year of important progress in our sustainability journey, as evidenced by our earning the top rating of platinum from EcoVedas 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. Sustainability is at the core of our purpose and our Creating for Tomorrow strategy, and during the year we made important progress on several strategic fronts. Of particular note in 2023 was the launch of our Evolve Sustainable Solutions Technology Platform, which is focused on advancing sustainable reinforcing carbons. Our goal through the Evolve technology platform is to develop products for our customers that offer sustainable content with reliable performance, and importantly, at industrial scale. Evolve platform is built on three pillars. The first pillar is recovered, where we are focused on developing solutions made from circular value chains, such as end-of-life tire recycling and the plastics recycling value chain. The second pillar is renewable, where we are advancing solutions made from renewable materials or bio-based feedstocks. And finally, reduced, where we seek to innovate new products made from processes with demonstrably lower greenhouse gas footprint. We believe our evolved sustainable solutions platform will play a critical role in our sustainability journey as we look to collaborate with our customers to deliver solutions that address some of their most pressing sustainability challenges. We have a number of projects in various stages of development with our customers and technology partners, and I'm excited about the future innovations that they're expected to deliver. I'll now turn the call over to Erica to discuss the financial results of the quarter in more detail. Erica.