Trinseo PLC

We welcome the Trinidad Management Team, Frank Bosich, President and CEO, David Stacey, Executive Vice President and CFO, and B. Van Kessel, Senior Vice President of Corporate Finance and 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 the presentation slides, at Closet Market Wednesday, November 6. These documents are posted on the company's Investor Relations website and furnished on a Form 8K filled with the Securities and Exchange Commission. If anyone should require a participants to join the call, please press star then zero on your telephone. I will now hand over to B. Van Kessel.

Thank you, Gavin, and good morning everyone. At this time, all participants are in listen-only mode. After our brief remarks, instructions will follow to participate in the question and answer session. Our disclosure rules and cautionary notes on forward-looking statements are noted on slide two. 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 10K 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 financial measurements. A reconciliation of these measurements to corresponding GAAP measures is provided in our earnings release and in the appendix of our Investor presentation. A replay conference call and transcript will be archived on the company's Investor Relations website shortly after the conference call. The replay will be available until November 7, 2025. Now I would like to turn the call over to Frank Bozic.

Thanks, Bea, and welcome to our third quarter 2024 earnings call. Before we get to our Q3 results, I would like to introduce everyone to Bea Van Kessel, who will be moving back into the finance organization with responsibility for Investor Relations, Treasury, and Corporate Development. Bea brings a wealth of company and industry knowledge with her as she most recently served as Senior Vice President, leading the Plastic Solutions, Polystyrene, and Feedstocks business segments. Prior to that, Bea served as Senior Director of Global Business Finance, where she led the business finance organization for all of Turin's reporting segments. I want to thank Andy Myers for his many years of leading the Investor Relations group and look forward to continue working with him as he takes on other responsibilities within the finance organization. Andy and Bea will be working closely together over the coming weeks to ensure a smooth transition. Now I'd like to turn to our Q3 results. As expected, market conditions and adjusted EBITDA were similar to the prior quarter. MMA supply dynamics and moderating European input costs continue to support healthier margins in our engineered materials segment. While demand remained weak in many of our end markets, particularly building and construction and consumer durables, we saw significant year over year profitability improvement. Largely resulting from our earlier restructuring actions. We also had our second consecutive quarter sequential improvement in free cash flow. And anticipate this trend will continue as free cash flow is expected to turn positive in Q4. Our third quarter results were negatively impacted by unplanned outages at two of America's diuretic production facilities during the quarter, which pushed adjusted EBITDA to the lower end of our guidance range. While volumes in the quarter decreased 8% year over year, this was largely driven by our efforts to shed on economic sales in Asia and Europe to optimize plants operations and working capital, particularly in polystyrene. However, excluding polystyrene, volumes were basically flat versus prior year, while product mix improved as volumes increased in several of our higher margin targeted growth areas. This includes a 36% increase in compounds for consumer electronics applications in engineered materials due to higher demand and new business wins and a 7% volume increase in case and battery applications and latex binders. Additionally, sales of recycled content containing products increased 40% in Q3 versus prior year and 57% year to date. Demonstrating our continued focus and the success we are seeing in making sustainable offerings a larger part of our portfolio. In fact, sales of recycled content containing products represented 6% of the total company margin in the third quarter. Now I'd like to discuss several of the strategic actions that we took during the quarter. As the macroeconomic landscape remains uncertain and demand weakness has persisted, we continue to take decisive action to improve our footprint and cost structure. At the end of the third quarter, we announced additional restructuring initiatives in order to better position the business for longer term growth and to reduce our corporate and functional costs to reflect the smaller footprint we currently operate. This included combining the management of our engineered materials, plastic solutions and polystyrene businesses, resulting in workforce reductions from the consolidation of the business management roles and support functions. We believe this will result in a more streamlined organizational structure that will fuel our ability to continue growing in our core markets and in our higher value offerings. These actions are expected to result in cost savings of approximately $25 million in 2025 and a full run rate savings of $30 million by the end of 2026. We also announced the decision to exit virgin polycarbonate production at our Stade Germany facility following the discussions with the relevant works councils. Once operations have concluded, we will purchase all of our polycarbonate needs for our downstream differentiated products from external suppliers. As we previously stated, this is expected to increase annual profitability by $15 to $20 million in comparison to producing virgin polycarbonate. We remain committed to developing and investing in our polycarbonate dissolution technology, which will replace a portion of our external polycarbonate purchases with our own recycled polycarbonate as that technology continues to grow to commercial scale. Now Dave will discuss our third quarter results.

Thanks Frank. Third quarter adjusted EBITDA of $66 million was $25 million higher than prior year and similar to the second quarter. Year over year results improved across all business segments, except for America's diurentics, which had unplanned outages at two facilities leading to a $10 million negative impact on equity affiliate income during the quarter. Cash provided by operations during the quarter was $9 million, which resulted in free cash flow of negative $3 million. This included a $14 million decrease in trade working capital. We expect free cash flow to turn positive and be significantly higher in the fourth quarter due to typical seasonal working capital improvements. We ended the third quarter with $165 million cash and $342 million of total liquidity, including our two committed financing facilities. Cash preservation and liquidity management continues to be our top priority. Now I'll turn the call back over to Frank.

Thanks Dave. Looking ahead to the fourth quarter, we expect seasonally slower market demand to result in sequentially lower adjusted EBITDA. While October volumes are in line with their average for the year, we anticipate a more pronounced year-end seasonality compared to the typical year. However, we expect higher profitability in Q4 compared to prior year due to the benefits of our restructuring initiatives, as well as the full quarter of operations at America's Stead Runix. As a result, we expect Q4 adjusted EBITDA of $40 to $50 million. We are pleased how the third quarter evolved in line with our expectations and understand that the fourth quarter will be more challenging due to the year-end seasonality and continued macroeconomic uncertainty. However, seasonal working capital improvements should result in a stronger liquidity position at the end of the year despite the lower sequential profitability. I want to thank our employees around the world for their continued focus and dedication to Terenzio as we continue to drive productivity and innovation in our core technologies. And now we're happy to take your questions.

If you wish to ask a question, please press star followed by one on your telephone and wait for your name to be announced. That is star one if you wish to ask a question. And your first question comes to the line of Frank Mitch from Fermium Research. Your line is open.

Good morning all and Huyamaga be and Belkom. That's about as far as I'm going to take that. Frank, can you give us an update on the Amstie sales process and Dave, I appreciate that 10 million negative peddments for for 3Q. Is that all is or is the unplanned outages, is that all behind us and smooth sailing in 4Q there?

So maybe I'll just answer the both of those. So the simple answer to the second question is yes, that's behind us. They've restarted both of those units. And we expect to see a full contribution from Amstie in Q4. The status of the process is, look, we've said this before, we have a joint agreement with CP Chem to jointly market the asset. We began our process in Q3 and we continue to expect that we would sign a transaction in the first half of next year.

Terrific. And then I guess on financing, is there any update on the timing and process regarding the extension of the May 26 revolver and as it stands now, is the plan to utilize that revolver to repay the sub notes?

So

Frank, look, yeah, so we have the sub notes is 115 million just for clarity, 115 million due in September of next year. The plan would be either to use cash on hand or a refinancing transaction to handle that. We are continuing to look at both and we'll announce something. We have something more concrete to say publicly about it,

Frank. Thanks so much.

Your next question comes from the line of Matthew Blair from TPH. Your line is open.

Thank you and good morning. Just regarding the Q4 guide, so, you know, it seems like there'll be some tailwinds from Amstie getting back up, you know, call it approximately 10 million. And then you mentioned the seasonality that you're expecting in the more differentiated parts of the business. But could you provide just a little bit more explanation and color around that? I mean, I guess that would imply some pretty severe drop offs in plastic solutions and engineering materials, potentially latex binders as well. So is this just seasonality? Is this just being conservative? Are there any other factors like raw materials or net timing that you're also anticipating would be headwinds in the fourth quarter?

So, yeah, I'll help you with the bridge on that. So at the midpoint of our guide, 45 million, we're down, let's call it 20 quarter of a quarter. And you're right, plus 10 of Amstie. So what we're bridging is 30 million dollars. About half of that bridge is explained by fixed cost absorption, you know, related to running the plants. Like Frank said, we do expect a more pronounced shutdown season this year, and a lot of our customers and we'll operate similarly. So we will have a fairly significant inventory drain in the third quarter. Whereas we had a build out in the, excuse me, a drain in the fourth quarter, whereas we had a build in the third quarter, building up, preparing for the shutdown. So about half of that 30 million dollar bridge is explained by that, you know, just fixed cost absorption. And the rest is volume and margin, you know, really across all the businesses. You know, we do expect you know, demand to be lighter just due to seasonality. I think that's been a consistent theme during this earnings season. So, you know, we will see that as well. I do think, Matthew, we do, we would expect negative timing in the quarter, you know, standing here today, I don't know, five million dollars or so, just due to styrene prices going down, but that should help with the bridge.

That does help. Thank you. And then thinking about some of the moving parts on the 2025 free cash flow outlook, your 2024 guidance includes a 45 million dollar restructuring cost. Do you have a sense of what restructuring would look like in 2025 and, you know, aside from just EBITDA, are there any other discrete moving parts we should be thinking about with 2025 free cash flow?

Yeah, so Matthew, I'd refer you to slide 11 in our charts where we list out all the pieces for a free cash flow for 2024. And you're right, our cash, we expect to spend 45 million dollars this year on restructuring. I expect that to be a similar number next year. Obviously, the spend related to the shutdown of the styrene plants is, you know, is tailing off, but we do have, you know, we have a lot of things that we're going to be able to do. We do have the shutdown from the STOT facility as well as the corporate actions that we've took that will kick in. So I expect restructuring to be similar in 25 and then drop off materially in 26. But all the other pieces on this bridge, I would expect to be materially the same in 25 versus 26. So capex, you know, cash taxes turn around, etc. And if you add all those up, it's 340 million dollars, right? So the cash outflows, if you will, for this year is 340 million. So we would need 340 million of EBITDA to be cash flow break even. Now, you know, the one line that I think is worth mentioning is cash interest. We have 200 million dollars this year. You know, clearly we're in an easing cycle now. We'll see later this afternoon what happens with the Fed. But as I said, you know, I call last call, I think we have a billion, eight floating rate debt. So every hundred basis points reduction reduces our cash interest by 18 million dollars. So I would expect the 200 million of cash interest to be lower next year, depending on the on the pace of Fed cuts. Great. So I think, you know, to sum all that up, to sum all that up, Matthew, I mean, that puts our, you know, I think our cash flow break even drops to more like a low 300s type number for 2025. Got

it. Thanks. Your final question comes to the line of Lawrence Alexander from

Jeffries LLC. Your line is open. Lawrence Alexander, your line is open.

Sorry about that. Can you give some sense on what your customers are saying about once we get through the kind of year end seasonal adjustments? How much pent up demand they're seeing for the first half of next year? Any innovation cycles that would be pulling product forward? Can you give a sense for kind of how we should think about the demand side for the bridge for next year?

Yeah, Lawrence, the, you know, as I've been at customers as recently as Monday, you know, what I'm hearing is that, you know, they see the Q4 is sort of a declining raw material environment. And so they're, I think in general, most of our customers are not building inventory, awaiting, you know, waiting for Q1. I think there was also some uncertainty about the regulatory environment and the election results more broadly, even across the world. And so, you know, the tone I'm hearing from most of our customers is that they expect Q1 to be stronger and that they expect to see modest improvement in their, in their outlooks. And they, and again, for us, as you know, building and construction is a big part of our portfolio. You know, their anticipation is that easing interest rates will stimulate pent up demand in building and construction. So I would say modestly positive for Q1 is the outlook.

Thank you.

You know, maybe let me build on that just a bit, because I think not only, you know, if I think about next year, while we're not giving guidance at the current time, you know, we anticipate that there are three factors that will, you know, give us support for next year as we head into 2025. Those are the restructuring initiatives, known business wins that we have today that we've achieved during 2024 and will achieve in 2025 that will fully accrue, plus the full year benefits from Amstau. So those collectively, you know, are the things that are factoring into improvement for next year. And, you know, we would expect that certainly the adjusted EBITDA for next year would have a three in front of it, you know, be a 300 million plus.

There are no further questions. So I'd like to thank the Trinidad management team and you all for joining. That does conclude our conference for today. Thank you for participating in our disconnect.