Olin Corporation

Good morning and welcome to Olin Corporation's second quarter 2021 earnings conference call. All participants will be in a listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. Following today's brief opening comments, there will be an opportunity to ask questions. To ask a question, you may press star then one on your touchtone phone. To withdraw your question, please press star then two. Please note, This event is being recorded. I would now like to turn the conference over to Steve Keenan, Olin's Director of Investor Relations. Please go ahead, Steve.

Thank you, Chad. Good morning, everyone, and thank you for joining us today. Before we begin, let me remind you that this discussion, along with the associated slides and the question and answer session that follows, will include statements regarding estimates or expectations of future performance. Please note that these are forward-looking statements and that actual results could differ materially from those projected. Some of the factors that could cause actual results to differ from our projections are described without limitations in the risk factors section of our most recent Form 10-K and in yesterday's second quarter earnings press release. A copy of today's transcript and slides will be available on our website in the investors section under past events. Our earnings press release and other financial data and information are available under press releases. With me this morning are Scott Sutton, Olin CEO, Pat Dawson, President, Epoxy, Damian Gumpel, President, Chlorophyll-I Products and Vinyl, Brett Floyer, President, Winchester, Jim Varlick, Olin COO, and Todd Slater, Olin CFO. Scott will begin with some brief remarks, after which we will be happy to take your questions. I'll now turn the call over to Scott Sutton.

Yeah, thanks, Steve, and hi, everybody. Look, I mean, the most important data to know today is that our Olin employees are accelerating our success. So we're going to use this earnings call to forecast just a bit further down the runway as well and keep up with our team's momentum. As previously forecasted, the second quarter adjusted EBITDA did exceed the first quarter adjusted EBITDA by $119 million, or 27%, excluding the one-time benefit from winter storm URI in the first quarter. We also forecast that the third quarter adjusted EBITDA will exceed the second quarter as well. And we expect our full year adjusted EBITDA result to be at least $2.1 billion. So opening up with slide number three in the presentation, 2022 is a positive stepping stone for Olin, principally because we will grow the number of knobs in our hands via expansion of our interlinked matrix of activation nodes. The various combinations of activations across the interlinked matrix are what lifts Olin's value. Generally, the first order effect of a singular activation is unseen. However, the second or third order effect from multiple activations is what lifts the whole Olin tie. Fundamental to that rising value tie are our three linchpin products, elemental chlorine, epichlorohydrin, and ammunition primers. Our pricing in those products is a ratchet. Our pricing only turns one way and does not reverse. If necessary, we will sell zero volume into the freely negotiated market to preserve our ratchet principle and the value of our broad downstream chains based on those linchpin products. Across all our businesses, supply chains are closer to empty than full. And in 2022, we expect demand growth to outpace supply growth. Continuing to slide number four. In 2022, we should gain traction in our next phase of parlaying and potentially surface some acquisition opportunities to complement our differentiated model And in doing so, use the funds from the Olin cash flow machine to deliver more value to our shareholders. On slide number five, that parlaying activity is new in 2021, but we do have some accomplishments to catch up on and report beginning here in the second quarter, which reached an annual run rate of about 500,000 tons of molecules made on somebody else's assets, but now running through our matrix. We will share a tracking mechanism to report on our progress in this important area as we move into 2022 and beyond. In my opening comment, I said we would forecast just a bit further down the runway. So on slide number six, we are calling out a few discrete upsides beyond 2022. I will just note that we have a lot of elemental chlorine, a linchpin product, moving into the titanium dioxide space. We won't be supplying large parts of that industry in 2023 as we move that chlorine volume into higher margin end uses or completely take it out of our system. In 2024, we expect Winchester's participation in the Next Generation Squad Weapon Program to become significant. And we have Brett Floyer, our Winchester president, with us today if you have some questions about that or about our expectations to continue growing the recreational shooting pie as well. And finally, in 2025, the 10-year cost-based sales contract term representing 30% of our ECUs is completed as well. And all options are accretive for Olin. Some options substantially reduce our carbon footprint as well as we evolve our ESG scorecard targets. Pulling back to today a bit, Please see slide number seven and number eight. As our mastery of the ECU conundrum solution continues to improve, we matched our market participation to the weaker side of the ECU, caustic, and pricing on both sides of the ECU improved versus the first quarter. The first time that pricing on both sides of the ECU moved in the same direction since we have articulated this contrarian model. Not surprisingly, the Olin ECU Profit Contribution Index lifted again. Moving to slide number nine. I hope you noted that Winchester's second quarter adjusted EBITDA improved to $115 million. So in addition to our future participation in the Army's next generation squad weapon, we are embarking on a plan to wrench some of the 175 million adults and part of the 45 million youths who don't participate in target shooting today by using the Winchester brand to grow the overall pie. So, before opening the call up to Q&A, let me call out a few key elements at play in the third quarter on slide number 10. First of all, fundamentals are good. We started off the third quarter with our model positioned to participate less in the weaker side of the ECU, caustic. But as we move through the rest of the third quarter, we will adjust our configuration depending on which side of the ECU is weaker relative to the other side. We relish that opportunity to add another proof point to our model and demonstrate that we deserve a higher valuation. Depoxy continues its upward adjusted EBITDA margin march, as it is now at 22%. And Winchester improves its value equation, even though we expect commodities costs to be sequentially higher in the third quarter. That concludes my opening comments. And operator, we are now ready to take questions.