Kraton Corporation

Good morning and welcome to Create on Corporation's second quarter 2020 earnings conference call. My name is Kath and I'll be your conference facilitator. At this time, all participants are in a listen-only mode. Following the company's prepared remarks, there will be a question and answer period. If you would like to ask a question, please press star followed by the number one on your phone. And today's conference is being recorded. If you have any objections, please disconnect at this time. I'll now turn the call over to Mr. Gene Shields, Director of Investor Relations. You may begin.

Thank you, Cath. Good morning and welcome to the Crayton Corporation second quarter 2020 earnings call. With me on the call this morning are Kevin Fogarty, Crayton's President and Chief Executive Officer, and Atanas Atanasov, Crayton's Executive Vice President and Chief Financial Officer. A copy of our second quarter news release and the related presentation material we will review this morning is available in the Investor Relations section of our website. Before we review our results for the second quarter of 2020, I'd like to draw your attention to the disclaimers on forward-looking information and the use of non-GAAP measures included in our presentation this morning and in yesterday's earnings press release. During the call, we may make certain comments that are not statements of historical fact and thus constitute forward-looking statements. Investors are cautioned there are risks, uncertainties, and other factors that may cause Craton's actual performance to be significantly different from the expectations stated or implied by any forward-looking statements we make today. Our forward-looking statements speak only as of the date they're made, and we have no obligation to update such statements in the future. Our business outlook is subject to a number of risk factors, as the format of this morning's presentation does not permit a full discussion of these risk factors please refer to our Forms 10-K, 10-Q, and other regulatory filings available in the Investor Relations section of our website. Regarding the use of non-GAAP financial measures, a reconciliation of each non-GAAP financial measure we use to its most comparable GAAP financial measure was provided in yesterday's earnings release and in the appendix of the presentation we'll review this morning. Following our prepared remarks, we'll open the line for your questions. I'll now turn the call over to Kevin Fogerty. Kevin.

Thanks, Gene, and good morning, everyone. In light of the overall market conditions, in particular, a greater impact on global market demand associated with COVID-19, we are pleased with our results for the second quarter of 2020. Crayton delivered strong financial results in the second quarter with adjusted EBITDA of $69.5 million. As always, and certainly in the current environment, the safety of our employees has continued to be our highest priority. We've been fortunate thus far that the steps we have taken and the responsible actions of our employees have resulted in no significant COVID-19 concerns or any material impairment in our ability to operate efficiently, effectively, and of course, safely. Crayton's broad portfolio and geographic diversification continues to be a strength. Our diversification and the resilience of our business model contributed to our second quarter 2020 results, particularly in our polymer segment where we continue to see stable demand and many in markets such as medical, personal care, adhesives, and infrastructure, and where favorable raw material sourcing, particularly for butadiene, contributed to this strong profitability in the quarter. However, current market conditions did present a more challenging environment for our chemical segment, where sales volume was down compared to the second quarter of 2019 due to overall market fundamentals, especially in the Americas, including the adverse impact of COVID-19 on in-market demand and a significant decline in oil field activity in North America. In terms of management actions, during the second quarter, we made solid progress on cost control and operating efficiency, particularly with the ongoing focus on our manufacturing locations to drive improvement and fix costs. Turning now to slide five, while COVID had a broader impact on the global environment, as mentioned, we did not experience disruption in our global safety chain, supply chain, or operational capability. Our plants continued to operate at planned rates. Raw materials were readily available, and in our polymer segment specifically, at historically attractive prices. And as a result, we targeted an inventory build in the second quarter to leverage these low raw material costs. With the health of our employees, customers, stakeholders, and local communities remaining our top priority, our manufacturing locations continue to operate at normal planning rates. under the enhanced social distancing protocols and safety measures we implemented earlier in the year. Outside of our manufacturing locations and innovation centers, the majority of our employees continue to work remotely. Because of our safety precautions, once again, and the ongoing diligence of our employees, we have not had a significant number of reported cases of COVID-19 within our company. Although COVID-19 did not have a material impact on our first quarter 2020 results, we did see a broader demand impact associated with COVID-19 in the second quarter, particularly in North America. However, our geographic and end-market diversity was an advantage in the quarter as solid demand trends in medical, personal care, adhesives, and infrastructure served to mitigate weakness in other end markets. Given the overall resilience of our business, our balance sheet remains healthy. Since year-end 2019, we have reduced consolidated net debt by $474 million. We have no scheduled maturities until 2025 and a very strong liquidity position. with cash of $137 million at quarter end and significant availability under our $250 million ABL facility. Due to a number of factors, including the annual seasonal inventory bill in advance of the paving and roofing season, we historically generate the majority of our cash in the second quarter, or excuse me, the second half of the year. We expect this to be the case this year as we liquidate inventory in the second half, releasing working capital and generating cash in the process. As such, we anticipate further debt reduction through free cash generation over the balance of the year. Given the health of our balance sheet and our financial flexibility, our current operating and strategic priorities remain unchanged. Debt reduction remains a primary focus. We continue to position the company for the long term, and we therefore continue to invest in our innovation pipeline. Through our innovation commitment, we have recently introduced our revolution family of low-color Raus and Esther formulations. which are providing a compelling bio-based alternative to hydrocarbon-based tachyfires, and our circular polymer grades, which are enabling expansion of the circular economy through their ability to compatibilize virgin plastic, bioplastics, and post-consumer and industrial plastic recycling streams. The overarching theme in many of our recent innovation successes, as well as our ongoing innovation programs, is sustainability. Over the past year, we have made great progress in advancing our sustainability objectives. not only on the product development front, but also in terms of tangible progress in establishing key metrics. Consistent with the overall theme of sustainability, we remain on track to deliver an estimated $20 million of run rate cost savings by year end. With these opening comments, I'm going to turn now the call over to our Chief Financial Officer, Athanas Atanasoff, who will provide more details on our financial results for the second quarter. Athanas?