Huntsman Corporation

Greetings and welcome to the Huntsman Corporation first quarter 2022 earnings call. At this time, all participants are in a listen-only mode. The question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. I would now like to turn the call over to Ivan Marcuse, Vice President of Investor Relations. Thank you. You may begin.

Thank you, Daryl. Good morning, everyone. Welcome to Huntsman's first quarter 22 earnings call. Joining us on the call today are Peter Huntsman, Chairman, CEO, and President, and still lists our Executive Vice President, CFO. This morning, before the market opened, we released our earnings for the first quarter 22 via press release and posted it to our website, huntsman.com. We also posted a set of slides on our website, which we will use on the call this morning while presenting our results. During the call, we may make statements about our projections or expectations for the future. All such statements are forward-looking statements, and while they reflect our current expectations, they involve risks and uncertainties that are not guaranteed for future performance. You should review our filings with SEC for more information regarding the factors that could cause actual results to differ materially from these projections or expectations. We do not plan on publicly updating or revising any forward-looking statements during this quarter. We will also refer to non-GAAP financial measures such as adjusted EBITDA, adjusted net income, and free cash flow. You can find reconciliations to the most directly comparable GAAP financial measures in our earnings release, which is posted on our website, Huntsman.com. I'll now turn the call over to Peter Huntsman, our Chairman, CEO, and President.

Ivan, thank you very much. Good morning, everyone, and thank you for joining us. Let's turn to slide number five. Adjusted EBITDA for our polyurethanes division in the first quarter was $224 million, compared to $207 million of a year ago, an 8% increase. Revenues grew 30%, primarily due to the price increases that we implemented to offset significant inflationary feedstocks and logistics costs. Our volumes improved 4% year on year. Compared to the first quarter of 2021, Volumes growth in the Americas region was 7%, followed by Asia at 4% and Europe at 2%. We expect the Americas to remain our strongest region, driven by construction-related markets as well as overall economic strength. In Europe, we are closely monitoring the impact of the war in the Ukraine and on the broader economy. While visibility in this regard is difficult, to date we still see stable demand driven by construction and adhesives in coatings markets. In Asia, specifically China, we expect to be negatively impacted in the near term from the government mandated lockdowns as the country attempts to control COVID. Despite continued logistics and supply issues, our Huntsman Building Solutions platform recorded first quarter revenues of approximately $160 million, nearly 50 percent above the prior year, primarily due to a strong pricing action. Consumer sustainability trends combined with high global energy prices remain clear tailwinds for HBS, and strategically, we will continue to upvalue our polymeric MDI into spray foam insulation systems. Our polyurethane automotive platform continued to be impacted by the global chip shortage in supply chain issues. However, for the first time in several quarters, we delivered year-over-year growth. This growth was due to modestly improving trends, favorable year-over-year comparisons, and continued product substitutions. Revenues increased 18%, with volume increases at 4% year-over-year, We will continue to invest in our automotive platform and bring innovative solutions to our customers. Our third global platform is our elastomer's business, which includes both industrial and consumer segments. We continue to implement price increases to offset inflation and overall revenue climbed 28% versus the first quarter of 2021. The industrial markets remain the strongest sources of value and demand for this business with good growth in the Americas. We've chosen to deselect some footwear-related revenues in Asia where we do not believe value is being achieved in a highly inflationary environment. Our value over volume approach remains core to our strategy for polyurethanes, and this intent will drive our decisions on how and where we invest and also where we choose to supply both geographically and by end market. The new MDI splitter in Geismar, Louisiana, which is one of our strategic investments that will allow further upgrades to our Americas portfolio, will be completed in June and will begin to contribute to results in the second half of this year. As we disclosed previously, once fully up and running, We expect this project to add an incremental $45 million of annual EBITDA to the division results by 2024. As we told you this last year at our Investor Day, equity earnings from our POMTBE joint venture with Sinopec in China declined in the first quarter compared to a year ago due to lower propylene oxide margins. The joint venture contributed approximately $12 million in equity earnings for the quarter, below the $35 million reported a year ago. We still expect equity earnings to be approximately $50 million lower in 2022 versus 2021. Raw material inflation remains a challenge, though through our pricing efforts, we were able to offset more than $250 million in direct costs when compared to the first quarter of 2021. About half of this inflation in costs were in Europe, where we implemented surcharges and price increases in order to overcome these headwinds. We expect costs to increase in the second quarter over the first quarter, but believe we will be able to offset these costs through our pricing initiatives. In addition to our focus on upgrading our margins by driving molecules into higher value added margins and products, We are focused on optimizing our cost structure in this division to further improve margins. We delivered in excess of $40 million from our first phase of cost optimization and synergies in polyurethanes, and we're in the process of concluding our plans for the next phase. We'll provide details in our second quarter earnings call and expect to deliver a $60 million run rate by the end of 2023 as targeted at our investor day. Looking into the second quarter, we're watching closely all of the challenges that the global economy is facing, such as military conflict, COVID lockdowns in China, cost inflation, and continued supply chain disruptions. Despite these challenges, while visibility is difficult, particularly in China and Europe, near-term trends in the second quarter remain relatively stable with the first quarter. As a result, we expect polyurethane second quarter adjusted EBITDA to be in the range of $210 to $230 million. Let's turn to slide number six. Performance products reported adjusted EBITDA of $146 million for the first quarter, with a 57% increase in revenues and adjusted EBITDA margins rising to 30%. This margin is above our target range of 20% to 25%, with both amines and malic, delivering strong performance. Over time, we do expect some moderation in certain amine products in Asia, primarily into the renewable energy wind market. We are confident that the supply and the demand dynamics in performance products remain favorable in the medium to long term. In addition, with our commercial excellence program and focus on cost controls, this division should continue to deliver high adjusted EBITDA margins clearly in excess of 20% for the foreseeable future. Volumes increased 2% compared to the prior year period. Demand fundamentals in coatings and adhesives, constructions, composites, fuel additives, and other industrial markets are benefiting both our Malay and Amin businesses. We saw profitability improve year on year in all three regions, as well as sequentially compared to the fourth quarter. Throughout all our divisions, we are focused on value over volume, and performance products is no different. This will continue to be the case as we make targeted organic investments. We have absorbed over $80 million in year-on-year cost increases, expanding margins where possible, and have remained extremely disciplined commercially. As we have said before, this is now a very different division than the one we formally ran before the $2 billion divestment to Indorama in early 2020. Last year, we announced targeted capital investments in polyurethane catalysts and differentiated chemicals serving the electronic vehicle, semiconductor, and insulation markets. These projects continue to move forward and will remain on schedule to be completed on time. We expect all of these projects to contribute to results in 2023 and deliver more than $35 million of EBITDA benefits in 2024. We've said multiple times we would be highly interested in doing bolt-on acquisitions and performance products, but these opportunities tend to be few and far between. As a result, in the near term, we will stay disciplined and remain focused on organic investments in order to expand this business. The second quarter for performance products tends to be similar to the first quarter. However, we do expect to see some impact in volumes in China as a result of the COVID lockdowns in that country. We currently expect performance products to report a second quarter adjusted EBITDA of $130 to $140 million. Let's turn to slide number seven. Advanced materials reported adjusted EBITDA of $67 million in the quarter. significantly above last year's first quarter and the strongest quarter in the division's history. We achieved 20 percent adjusted EBITDA margins with an extremely disciplined approach to value over volume and all despite aerospace results remaining well below pre-pandemic levels. On a per unit variable contribution margin basis, Advanced Materials delivered a 50 percent improvement compared to the first quarter of last year and crucially, a further 15% improvement since quarter four, despite further raw material escalations. We are deselecting lower margin business while increasing our exposure to higher value sales where possible. In addition, the recent acquisition of Gabriel and CVC are contributing strongly, with a combined annualized run rate of $80 million suggested EBITDA in quarter one and above our average adjusted EBITDA margins as we execute on pricing and synergies. Revenues increased 21% compared to quarter one of 2021 and 6% versus quarter four. Prices increased 34% compared to quarter one 2021, while volumes were down 17% in the quarter versus the prior year and 5% sequentially. The majority of the reduction in volume was a conscious decision to exit commodity BLR manufacturing in the U.S. in line with our stated strategy. Raw material availability shortages, soft demand in Latin America, and implementation of our value over volume strategy somewhat curtailed volumes across our business, particularly in automotive, which declined 15% compared to the prior year. were relatively flat versus the fourth quarter. We did see growth in general industrial markets. Our aerospace business saw a significant uplift over last year's depressed quarter one and a meaningful sequential increase in profitability. Aerospace is currently trending towards an approximately 40% improvement compared to 2021, which would leave us at approximately $30 million of adjusted EBITDA short of pre-pandemic levels. The fundamentals of this industry remain strong. We expect to see continued improvements over the next couple of years as we get back to pre-pandemic levels. At this time, we still see stable underlying demand for many of our core specialty businesses in the Americas and Europe, and continue to see increased prices to offset inflation. We do expect that the COVID-related restrictions in China will have a modest impact on advanced material results in the second quarter. We expect adjusted EBITDA for this segment in the second quarter to be in the range of $62 to $68 million. Move on to slide number eight. Our Textile Effects Division reported an adjusted EBITDA of $28 million for the first quarter, which was 12 percent above the comparable prior year period. This, coupled with a record 14% margin, is the strongest first quarter in the history of this business. Overall revenues increased with strong pricing discipline and a focus on our specialty and differentiated sector. We continued to deselect lower margin business, and total volumes declined 14% in the quarter, in part due to disruptions caused by the COVID lockdown in China. The first quarter volumes were also impacted by a slowdown in the home textile market as imports into the U.S. fell year over year. Lastly, volumes were impacted by the recent rise in fiber prices, which caused many of our customers to delay open orders while they renegotiate contracts. Our forward open order patterns for this segment are extremely strong and well above 2021 levels. Our continued portfolio focus and market pricing alignment to higher raw material costs supported margin expansion during the quarter. We remain optimistic on the underlying fundamentals of this business and are confident our specialty-oriented portfolio will continue to remain strong and make up a larger percentage of our overall portfolio. As indicated, the order book is robust as customers and global brands look for solutions to reduce waste and increase transparency in the supply chain. We're watching the lockdown situation in China carefully. We currently expect adjusted EBITDA in the second quarter to be between $29 and $31 million. I'll now turn over the time to our Chief Financial Officer, Phil Lister.