Stepan Company

Welcome to the Q1 2023 Steppin' Company earnings conference call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 11 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 11 again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to Luis Rojo, Chief Financial Officer. Please go ahead.

Good morning, and thank you for joining Stepan Company's first quarter 2023 financial review. Before we begin, please note that information in this conference call contains forward-looking statements, which are not historical facts. These statements involve risks and uncertainties that could cause actual results to differ materially, including but not limited to prospects for our foreign operations, global and regional economic conditions, and factors detailing our Security and Exchange Commission filings. Whether you're joining us online or over the phone, we encourage you to review the investor slide presentation, which we have made available at www.stephan.com under the investor section of our website. We make these slides available at approximately the same time as when the earnings releases issue, and we hope that you find the information perspective helpful. With that, I would like to turn the call over to Mr. Scott Behrens, our President and Chief Executive Officer.

Good morning, and thank you all for joining us today to discuss our first quarter results. To begin, I will share our first quarter highlights and strategic outlook, while Luis will provide additional details on our financial results. The company reported first quarter adjusted net income of $16.4 million. Earnings were significantly impacted by a 14% decline in volume driven by softening market demand, delays in the startup of new low 1.4 dioxane production assets, and continued customer and channel destocking across most of our markets. Our margins were in line with expectations despite high cost inventory carryover from the fourth quarter and increased competitive activity within certain end-use markets. Despite ongoing inflationary pressures and higher cash expenses related to the construction and pre-commissioning activities of our new alcoxylation investment in Pasadena, Texas, and the startup of our new low 1,4-doctrine capacity in the U.S., we kept cash expenses consistent year over year. For the quarter, adjusted EBITDA was $48.7 million, down $31 million versus Q1 2022, primarily driven by the decline in sales volume. Surfactant operating income was $27.1 million versus $53.8 million in the prior year, primarily due to a 13% decline in global sales volume that was partially offset by improved product and customer mix. The lower sales volume was mostly due to lower global commodity laundry demand, low 1,4-dioxane transition startup delays, and the previously disclosed backward integration by one customer. Volumes were also negatively impacted by lower demand within the North American personal care end market and customer inventory destocking. Higher global demand in the agricultural end market partially offset the declines. Polymer operating income was $10 million, a decrease of $4 million versus the prior year, or 28%. This decrease was primarily due to an 18% decline in global sales volume, led by a 19% volume decline in rigid polyols. Lower phthalic and hydride volumes were partially offset by slightly higher specialty polyol volumes. The lower demand in rigid polyols reflects customer and channel inventory to stocking and lower construction-related activities. Specialty product operating income was $2.5 million versus $3.7 million in the prior year. This decrease was primarily attributable to lower sales volume and margins within the medium chain triglycerides product line. Our board of directors declared a quarterly cash dividend on Steffen's common stock of 36.5 cents per share, payable on June 15, 2023. Stephan has paid and increased its dividend for 55 consecutive years. During the first quarter of 2023, the company paid $8 million in dividends to shareholders. The company did not purchase any company stock in the first quarter of 2023 and has $125 million remaining under the share repurchase program authorized by its board of directors. We remain confident in the strength and diversity of our business and its ability to generate cash that will allow us to continue to invest in our business, pursue strategic M&A opportunities, and return cash to our shareholders. Luis will now share some details about our first quarter results.