Olin Corporation

And welcome to the Olin Corporation's first quarter 2022 earnings conference call. All participants will be in listen-only mode. If 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 touch-tone 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, owner and director of Investor Relations. Please go ahead, Steve.

Thank you, Rocco. 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 first 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, Damian Gumpel, President, Epoxy and Corporate Strategy, Patrick Schumacher, President, Chloralkali Products and Vinyls, and Todd Slater, Olin CFO. Scott will begin with some brief remarks, after which we will be happy to take questions. I'll now turn the call over to Scott.

Yeah, thanks, Steve. Olin's first quarter results met a number of expectations, but we can deliver more. That said, the broad Olin global team delivered remarkable accomplishments in demonstrating that we have control over improving our value delivery in 2022 versus 2021. In the face of major CAPV power asset challenges, and now including a multi-month complete Plaquemines site shutdown and an epoxy market in which Olin absorbed and continues to absorb the demand shortfall. Both CAPV and Winchester delivered the highest quarterly EBITDA in their history. We were also pleased to announce our Blue Water joint venture with Mitsui and Company to substantially grow our participation in global liquidity and better service global demand. Complementing our leading position, Mitsui will bring to the joint venture both existing business and a tremendous global capability to drive long-term growth. So, beginning with slide number four, there are two main themes that I'll review in these remarks. One thematic is our Olin winning model, and the other is our Olin growth vectors. Here's the simple story of Olin. We're the global leader in all of our businesses and seek to expand our leadership. Our annual levered free cash flow is $1.7 billion, and it is very repeatable. We have a unique system value model that breaks the cycle phenomena. In other words, the Olin winning models. and we have accretive initiatives in every business, we call them Olin growth vectors. So let's start with the Olin winning model theme on slide number five and really respond to a very popular question that we get all the time. The application of our new winning model prevents deeply cyclic results that Olin historically inflicted upon itself. Here's the proposed proof. First, on the left-hand side from the top down, Olin could absorb demand shortfalls, like we are doing today in epoxy, by the way, and run our entire global chemical assets portfolio at 50% utilization rates for a whole year and still deliver close to $2 billion of EBITDA in that same year. So from the bottom up on the right-hand side, So we are speaking of from the $636 million of EBITDA in 2020. We add back material changes that we don't lose in the event of a recession and could still get to at least $1.5 billion of EBITDA. So with demand growth forecasted to be larger than supply growth across all of our businesses, we don't see the recession scenario materializing. But even if we did fall all the way down to $1.5 billion of EBITDA, we could still deliver more than a billion dollars of levered free cash flow in that same year. So a recession year yield of 13% at today's equity price. Continuing the Olin winning model theme on slide number six, the optionality and the high level mechanics of our model are important to understand. So we have tried to summarize a day in the life of operating our model. First, we set our broad market participation to the forecasted weaker side of the ECU. In other words, we don't chase the stronger side, and we limit our participation on the weaker side. Second, we determine which ole and chlorine derivative chains to give preference based on their relative values. Third, we decide how far downstream in each derivative chain we will participate. And finally, as a fourth step, even for the products that we do participate in, it may make sense to purchase liquidity from the global market instead of producing the product. The operation of the model is clearly more sophisticated than this simple summary. And as you might imagine, the operation is really executed across a deep and rational culture of value. Now, let's move to the Olin growth vectors thematic, beginning on slide number seven. Considering the backstop of our successful model, we can now cross an inflection point and run growth initiatives. Olin currently sits on the capability to incrementally facilitate the next world-scale PBC plan. We estimate the combined capital cost at about one-third of a Greenfield project with a much shorter time to market. This project could yield both growth and a broadening of the options available in the operation of our winning model. In other words, we get value back to Olin ton number one. So, moving to slide number eight. Sustainable hydrogen supply is an untapped opportunity for Olin. We already have one of our smaller core alkali facilities supplying hydrogen to the fuel cell market. Last night, we announced the signing of an MOU for a joint venture with Plug Power to supply sustainable hydrogen from our St. Gabriel, Louisiana production facility exclusively to the growing fuel cell market as well. Taken together, these two supplies represent about 6% of our current hydrogen production. We can expand this relationship to other Olin sites, and we have the independent option of replacing previously closed ECU electrolysis cells with water electrolysis cells as well. In epoxy, on slide number nine, Olin is positioning its technology to take advantage of robust future demand driven by megatrends. There are clear and specific global growth factors that will pull on epoxy demand, namely giant wind turbines, lighter automobiles, electrified vehicles, and more sustainable construction methods. For each of these vectors, Olin has developed a proprietary epoxy system to solve a technical and enabling feature needed in the end product. On slide number 10, Winchester is already highly engaged in materializing benefits from growth vectors in both the commercial and military arenas. Our Shoot United initiative is exposing the positive benefits of wholesome shooting sports with family and friends to millions potential new participants in this fast-growing sport. Winchester has also recently been awarded a new contract to kick off the development of the U.S. military's next-generation squad weapon ammunition production facility at our Lake City, Missouri, ammunitions plant. We expect multiple new fundings to be appropriated to Winchester to manage this effort, and additionally to supply the 6.8 millimeter rounds. Winchester is clearly on a growth path. So, that really concludes my opening comments. And operator, we are now ready to take questions.