DuPont de Nemours, Inc.

Good day and welcome to the DuPont Specialty Products USA LLC third quarter 223 earnings conference call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. And if you would like to ask a question during this time, simply press star followed by the number one on your telephone keypad. If you would like to withdraw your question, please press star one again. In the interest of time, please keep to one question and one follow-up question per person. For operational assistance throughout the call, please press star zero. And finally, I would like to advise all participants that this call is being recorded. Thank you. I'd now like to welcome Chris McRae to begin the conference. Chris, over to you.

Good morning, and thank you for joining us for DuPont's third quarter 2023 financial results conference call. Joining me today are Ed Breen, Chief Executive Officer, and Lori Koch, Chief Financial Officer. We have prepared slides to supplement our remarks, which are posted on DuPont's website under the Investor Relations tab and through the webcast link. Please read the forward-looking statement disclaimer contained in the slides. During this call, we will make forward-looking statements regarding our expectations or predictions about the future, because these statements are based on current assumptions and factors that involve risks and uncertainties. Our actual performance and results may differ materially from our forward-looking statements. Our Form 10-K, as updated by our current and periodic reports, includes detailed discussion of principal risks and uncertainties which may cause such differences. Unless otherwise specified, all historical financial measures presented today are on a continuing operations basis and exclude significant items. We will also refer to other non-GAAP measures. A reconciliation to the most directly comparable GAAP financial measure is included in our press release and presentation materials and have been posted to DuPont's investor relations website. I'll now turn the call over to Ed.

Good morning, and thank you for joining our third quarter 2023 financial review. This morning we announced third quarter results and delivered solid earnings accomplished through strong operating execution by our teams despite ongoing volume headwinds, including channel inventory destocking and continued weak demand in China. We reported sequential operating EBITDA growth of 5% and margin improvement of 140 basis points in the third quarter. We also produced strong cash flow during the quarter, with adjusted free cash flow almost 50% higher than the year-ago period, highlighting our efforts to prioritize working capital improvement in a challenging global business environment and normalizing after last year's global supply chain difficulties. Compared to third quarter 2022, organic revenue declined 10% due primarily to the impact of incremental channel inventory destocking. along with lower volumes from semiconductor and construction end markets. Within our electronics portfolio, our interconnect solution business recorded a second straight quarter of sequential sales lift as underlying demand improvement and normal seasonality contributed to an 8% sales increase. We also saw signs of stabilization with the semiconductor markets and expect some sequential sales improvement from semiconductor technologies in the fourth quarter. Third quarter volume was lower than expected, primarily due to incremental channel inventory destocking, including with our distributor customers, which was evident in the water solutions and safety solutions lines of business. In this environment, we remain focused on controlling discretionary spending and are also planning additional restructuring actions to continue to ensure we can drive sound operational and financial performance, targeting at least $150 million in annualized run rate cost savings, which we expect to be seeing later in the first quarter of 2024. It's always difficult to precisely time market inflections, but current industry forecasts within electronic submarkets fall for recovery by 2024. This includes forecasts for PC shipments that grow mid-single digits, driven by replacement demand, smartphone shipment growth in the mid-single digits, also driven by replacement demand, and new product launches, and for server demand to gradually improve next year. This growth is supported by the rapid surge in demand for AI servers, as well as replacement for traditional servers. In general, demand for high-performance and high-density memory chips is accelerating, supported by AI growth as well as overall growth for new mobile product launches. This directly correlates with DuPont's product strengths within the semiconductor and consumer electronics markets. Despite the near-term headwinds we are experiencing, we are confident that our key end markets are well-positioned for long-term growth and we expect these structurally attractive markets will provide the foundation for DuPont's value creation looking ahead. Turning to slide four, we significantly advanced our strategic and capital allocation priorities during the quarter to drive shareholder value. First, we closed the acquisition of Spectrum on August 1, which fits nicely alongside our Livio healthcare-related product line within our industrial solutions line of business within ENI. We are pleased with Spectrum's operating results to date, which are aligned with our modeled estimates. We are excited to welcome the Spectrum team, which is currently focused on executing new revenue growth opportunities stemming from significant customer wins earlier in the year. Second, I am pleased to announce that we are in the process of closing today the previously announced sale of our roughly 80% ownership interest in the Delrin business. the remaining piece of the former M&M segment held for sale to the private equity firm TJC in a transaction value in the business at $1.8 billion. This deal was structured to maximize value for our shareholders. It provides significant upfront cash proceeds with minimal expected tax impact, which can then be deployed in line with our strategic priorities. It also provides an opportunity for us to participate in future upside returns upon the exit of our retained interest in Delrin. TJC has an excellent track record of creating value, and we look forward to leveraging their talent and focus to continue to grow the high-quality Delrin business. Regarding share repurchases, in September, we completed the $3.25 billion accelerated share repurchase transaction launched last November. We then launched a new 2 billion ASR, which we expect to complete during the first quarter of 2024. Combining these two ASR transactions, we have repurchased approximately 15% of our outstanding shares when complete, reflecting our continued commitment to returning capital to shareholders as part of our balanced financial policy. Including these ASRs and the proceeds from the dollar in sale, we anticipate finishing the year close to our target net leverage ratio of about 2.1 times. Further, we anticipate using a significant portion of excess cash during 2024 for incremental share repurchases once the ASR is complete. With that, I'll turn it over to Lori.