Stepan Company

Greetings, and welcome to the Steppin' Company fourth quarter and full year 2023 earnings conference call. During the presentation, all participants will be in a listen-only mode. Afterward, we will conduct a question and answer session. As a reminder, this call is being recorded on Tuesday, February 20, 2024. It is now my pleasure to turn the call over to Mr. Luis Rojo. Vice President, and Chief Financial Officer of Stepan Company. Mr. Rojo, please go ahead.

Good morning, and thank you for joining Stepan Company's fourth quarter and full year 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 risk and uncertainties that could cause actual results to occur materially. included but not limited to prospects for our foreign operations, global and regional economic conditions, and factors detailing our Securities and Exchange Commission filings. In addition, this conference call will include discussions of adjusted net income, adjusted EBITDA, and free cash flow, which are non-GAAP measures. We provide reconciliations to the compatible GAAP measures in the earnings presentation and press release. which we have made available at www.stepan.com under the investor section of our website. Whether you're joining us online or over the phone, we encourage you to review the investor slide presentation. 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 and 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 fourth quarter and full year results. To begin, I will share our fourth quarter and full year highlights. Luis will then provide additional details on our financial results and I will finish up with comments on our strategic investments and will also provide brief comments on 2024. For the full year, adjusted net income was $50.7 million versus a record prior year of $153.5 billion. Earnings for the full year were significantly impacted by an 11% decline in volume due to a slowdown in demand across most end-use markets, including significant customer and channel inventory destocking. While we believe the negative impacts of destocking are mostly behind us, we continue to experience destocking within our agricultural business at the start of 2024. The team did an excellent job controlling our cash expenses. Cash expenses were similar to the prior year due to proactive headcount and discretionary expense controls implemented earlier in the year and lower incentive-based compensation accruals. Additionally, we executed our voluntary early retirement program and other fourth quarter workforce productivity actions that will deliver savings in 2024. In 2023, our cash flow from operations increased to $175 million, representing growth of 9% or $14 million compared to the previous year. The improvement in liquidity was driven by reducing inventory levels while we continued with our significant level of investment in our strategic growth projects. In the fourth quarter, the company reported adjusted net income of $7.5 million versus $13.5 million in the prior year. Volume was up 3% versus prior year, driven by double-digit growth in polymers and 1% up in volume in surfactants. Within surfactants, we delivered strong volume growth in personal care from our low 1,4-dioxane investments. We also grew volume in the industrial cleaning end market and with our distribution partners. Latin American surfactants volume also grew strong double digits as we continue recovering the business. These gains were partially offset by continued customer and channel destocking in the agricultural end market. Expenses were similar to prior year due to proactive headcount and discretionary expense controls implemented earlier in the year and lower incentive-based compensation accruals. Adjusted EBITDA for the fourth quarter was $37.5 million versus $40.0 million in the prior year. The reduction of 6% in adjusted EBITDA was largely driven by surfactants and specialty products, partially offset by growth in polymers. Surfactant EBITDA was lowered due to an unfavorable customer and product mix, lower income in agricultural chemicals, and lower revenues within our biocide product line. Latin American surfactants experienced lower volumes and margins due to competitive imports. Specialty products was down versus record results last year due to pricing pressure and higher cost raw materials. Adjusted EBITDA for polymers nearly doubled due to strong volume growth. We continue to make significant progress on our cash objectives, delivering another $19 million reduction in our inventory levels during the last quarter of the year. We delivered $22 million of positive free cash flow during the quarter as we finished our heavy capital investment phase. In the fourth quarter, our board of directors declared an increase to the quarterly cash dividend of one cent per share, or 3%. marking the 56th consecutive year that the company has increased its cash dividend to stockholders. During the fourth quarter of 2023, the company paid $8.4 million in dividends to shareholders and $33 million in dividends to shareholders for the full year. The company did not repurchase any company stock during the year and has $125.1 million remaining under the share repurchase program authorized by the 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 invest in our current business, pursue strategic M&A opportunities, and return cash to our shareholders. In summary, 2023 was a very challenging year for the company, but I am proud and grateful for the resilience and efforts shown by our team in executing the two biggest growth projects in the company's history while concurrently delivering our productivity gains and workforce action. Luis will now share some details about our fourth quarter and full year results.