Trinseo PLC

Please stand by, we're about to begin. Good morning, ladies and gentlemen, and welcome to the Trinzio third quarter 2023 financial results conference call. We welcome the Trinzio management team, Frank Bozich, President and CEO, David Stacey, Executive Vice President and CFO, and Annie Myers, Director of Investor Relations. Today's conference call will include brief remarks by the management team, followed by a question and answer session. The company distributed its press release along with its presentation slides at close of market Friday, November 3rd. These documents are posted on the company's investor relations website and furnished on a form 8K filed with the Securities and Exchange Commission. If anyone should require assistance during the call, please press star then zero on your telephone. And now I'll hand things over to Andy Myers. Please go ahead.

Thank you, Beau, and good morning, everyone. At this time, all participants are in a listen-only mode. After our brief remarks, instructions will follow to participate in the question-and-answer session. Our disclosure rules and cautionary note on forward-looking statements are noted on slide 2. During this presentation, we may make certain forward-looking statements, including issuing guidance and describing our future expectations. We must caution you that actual results could differ materially from what is discussed, described, or implied in these statements. Factors that could cause actual results to differ include, but are not limited to, risk factors set forth in item 1A of our annual report on Form 10-K or in our other filings made with the Securities and Exchange Commission. The company undertakes no obligation to update or revise its forward-looking statements. Today's presentation includes certain non-GAAP measurements. The reconciliation of these measurements and corresponding gap measures is provided in our earnings release and in the appendix of our investor presentation. A replay of the conference call and transcript will be archived on the company's investor relations website shortly following the call. The replay will be available until November 6, 2024. Now I'd like to turn the call over to Frank Bozich.

Thanks, Andy, and welcome to our third quarter 2023 earnings call. I'd like to start with a discussion of our Q3 results. As expected, our Q3 sales volume was roughly flat to Q2 and consistent with the lower demand level we've seen over the past year. This reflects lower end customer demand, particularly in consumer durables and building and construction, continued customer destocking, as well as weaker market demand in Asia, leading to higher exports to Europe. However, looking at our customers, we feel we are seeing a slowing of destocking and are hopeful this will end in the near future, depending on the value chain. Despite this prolonged period of reduced demand, we've taken numerous asset footprint and other cost reduction actions to improve our profitability. Late last year, we announced the closures of our styrene plant in Bohlen, Germany, and half of our polycarbonate production in Stade, Germany. along with consolidating our PMMA sheet production in North America. This year, we've seen significant profitability and free cash flow improvements from these actions. I would like to refer to the additional actions we've recently announced, which are highlighted on slide four of our investor deck. First, the closure of Archer News in the Netherlands styrene plant. Second, the optimization of our PMMA sheet network in Europe, including plant consolidations. And lastly, corporate cost reductions, including the elimination of certain executive positions. In aggregate, these recent actions are expected to result in approximately $75 million of annual cost reductions that we expect to be realized in 2024. We believe these actions will not only increase our profitability and cash generation, but will also enable us to continue investing in transformation projects such as recycling and material substitution innovations, which offer significant growth potential even in the current market environment. While market demand has remained challenging for the entire industry, we continue to see the benefit of the shift in our portfolio, to one that is more specialty and sustainability solutions oriented. In 2023, specialty and sustainable solutions comprise about 30% of our variable margin, and this is about double the level of 2020. This part of our portfolio has shown better margin resiliency in the current environment. Continued focus on growing these technologies and also taking decisive action on our more cost-sensitive assets gives us additional levers to improve profit while market demand remains depressed. Looking at Q3 profitability, we reported a net loss from continuing operations of $38 million and an adjusted EBITDA of $41 million. This result was below our expectations due mainly to the styrene-related impacts during the quarter, including a short-term spike in European styrene prices. while we were buying all of our styrene on the spot market during the unplanned outage at Ternusen. However, I'm proud to say that due to our continued focus on working capital, we were able to generate positive free cash flow for the third consecutive quarter. In addition, as previously announced, we've successfully refinanced all of our 2024 term loan and over 75% of our 2025 notes. Going back to the Ternus and styrene closer, I want to be clear that we did not take the closure of this plant lightly, but styrene profitability has been negative for the last nine quarters. With elevated energy prices in Europe, styrene production cost in the region is one of the highest in the world. Plus, given recent and planned global styrene capacity additions, we believe this feedstock will remain structurally long through the end of the decade. Therefore, we believe we'll be able to purchase styrene at lower prices than our production costs. The positive result of our previously announced bowling closer supports this as the correct course of action. This closure also reduces production risk, ongoing capital and turnaround cost while lowering our energy intensity and carbon footprint. With the closure of materials and styrene, we will no longer produce styrene anywhere in the world. We will therefore purchase all of our styrene needs from third parties. We have always purchased all of our styrene needs in North America and Asia, as well as a significant percentage of our European requirements. So this model is not new to us. We plan to buy via diversified geographic and commercial, providing us with flexibility to optimize our purchases. Starting in Q1 of 2024, we will no longer have a feedstocks reporting segment, and the actual purchase cost of styrene will flow through to the derivative segments, polystyrene, plastic solutions, and latex binders. These businesses pass through styrene costs in their product prices, either through market mechanisms or via price formulas. Because we will be buying all of our styrene and generally operate with pass-through economics in our downstream businesses, we don't expect to see the volatility of styrene margins in our results. Before I hand the call over to Dave, I'd like to talk to you about our progress in sustainability. This continues to be a bright spot, and our sales volume for recycled content-containing products was up 10% year-to-date from our continued focus in this very important area. On this topic, I'd like to provide more details on one of our sustainability projects that I'm particularly excited about. Earlier this year, we announced the inauguration of our polycarbonate dissolution pilot facility introduced in the Netherlands. Since that announcement, I'm happy to report that the pilot facility is fully operational, has been qualifying mixed waste streams, and producing samples of recycled polycarbonate for our customers. Through this ongoing investment, and our ability to repurpose the idle polycarbonate production line in Stade, Germany for this process, we expect to be able to achieve industrial scale production beginning in 2025 with a low capital expenditure. Now, I'd like to highlight some of the unique features of our technology and the advantages it will provide in the future. Our process uses our proprietary advanced physical recycling technology, that enables the recovery of polycarbonate polymer from end-of-life plastics such as automotive parts and consumer electronics that are difficult to recycle via traditional mechanical recycling methods. Our technology allows us to extract polycarbonate polymer from a mixed waste stream, meaning polycarbonate containing waste mixed with other plastic, metal or glass, giving us the ability to process waste that would otherwise be unrecyclable. As a result, certain waste that could only be sent to a landfill or an incinerator in the past can be recovered and recycled using our technology. This will enable closed-loop partnerships with automotive, electronics, and consumer goods customers that currently produce end-of-life plastics. These partnerships are highly attractive to our customers as they provide circular solutions. In addition to the sustainability advantages of our technology, the quality of polycarbonate that we extract through the dissolution process is on par with virgin PC and contains lower levels of residual bisphenol A. These reduced BPA levels could potentially expand the types of applications for which recycled PC is approved. Our process also emits up to three times less CO2 than virgin PC production, making both the process and end products more sustainable. Finally, because this technology permits the use of lower value waste and feedstock as feedstock, we anticipate at scale it will result in cost savings compared to virgin PC production. I'd like to thank our research and development team for their truly innovative work. and their dedication toward creating a cleaner, more circular polycarbonate technology. This is just one of the many exciting projects that we continue to focus on in order to achieve our 2030 sustainability and growth goals and continue to increase the mix of specialties in our portfolio. Now, I'd like to turn the call over to Dave.