Stepan Company

Good day, and thank you for standing by, and welcome to the Q2 2023 Step-in Company Earnings Conference Call. At this time, all participants are in the 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 1-1 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 1-1 again. Please be advised that today's conference is being recorded. I would now like to introduce your host for today's call, Luis Rojo, CFO. Please go ahead.

Good morning, and thank you for joining Stephan Company's second 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. included but not limited to prospects for our foreign operations, global and regional economic conditions, and factors detailing our security and exchange commission filing. 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.stepan.com on the investor section of our website. We make these slides available at approximately the same time as when the earnings release is issued. and we hope that you find the information perspective helpful. With that, I would like to turn the call over to Mr. Scott Bedden, our president and chief executive officer.

Good morning, and thank you for joining us today to discuss our second quarter results. I plan to share highlights from our second quarter performance. I will also share updates on our key strategic priorities, while Luis will provide additional details on our financial results. The company reported second quarter adjusted net income of $12.1 million. earnings were significantly impacted by a 19% decline in sales volume versus the all-time record prior year second quarter due to continued demand softness across most of our markets and continued inventory to stocking in certain market channels. In the second quarter, margins in our surfactant and polymer segments were only slightly lower versus prior year as a result of less favorable mix, while unit margins for specialty products were significantly lower versus prior year due to high-cost inventory and pricing pressure. Gradual volume improvement throughout the quarter within our rigid polyol business was more than offset by destocking activity within our agricultural business. Cash expenses were slightly lower versus prior year due to proactive headcount and discretionary expense controls implemented earlier in the year and lower accruals for incentive-based compensation. For the quarter, adjusted EBITDA was $45.8 million versus $96.7 million in the prior year quarter, primarily driven by the decline in sales volume. Adjusted EBITDA in the second quarter of 2023 was slightly lower than the first quarter of 2023. Second quarter surfactant operating income was $15.1 million versus $48.2 million in the prior year quarter. primarily due to a 15% decline in global sales volume. In addition, unit margins were slightly lower due to less favorable product mix, high-cost inventory carryover, and increased competitive pricing pressure in Latin America. Polymer operating income was $16.3 million, a decrease of $17.6 million versus the prior year. This decrease was primarily due to a 29% decline in global sales volume including a 28% volume decline in rigid polyols. Specialty product operating income was $3.8 million versus $9.9 million in the prior year. This decrease is primarily attributable to lower unit margins and sales volume within the medium-chain triglycerides product line versus a record prior year. During the second quarter of 2023, the company paid $8.2 million in dividends to shareholders and $16.3 million during the first six months of 2023. The company did not repurchase any company stock during the first half of 2023 and has $125 billion remaining under the share repurchase program authorized by its board of directors. Yesterday, our board of directors declared a quarterly cash dividend on Steppen's common stock of 36.5 cents per share, payable on September 15, 2023. Stepan has paid and increased its dividend for 55 consecutive years. Despite the challenging current macro environment and our reduced second quarter earnings, 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 and return cash to our shareholders. Luis will now share some details about our first quarter results.