Venator Materials PLC Ordinary Shares

Good day and welcome to the Venetian Third Quarter Earnings Call. All participants will be in listen-only mode. If you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on a touch-tone phone. To repair your question, please press star then two. Please note this event is being recorded. I would like to turn the conference over to Jeffrey Schnell, Director of Investor Relations. Please go ahead.

Thank you, Francesca, and good morning, everybody. I'm Jeffrey Schnell, Director of Investor Relations for Venator Materials. Welcome to Venator's third quarter 2019 earnings call. Joining us on the call today are Simon Turner, President and CEO, and Kurt Ogden, Executive Vice President and CFO. This morning we released our earnings for the third quarter 2019 via press release and posted the release and accompanying slides to our website at VenatorCorp.com. During this call, we may make statements about projections or expectations for the future. All such statements are forward-looking and, while they reflect our current expectations, they involve risks and uncertainties that are not guarantees of future performance. You should review our filings with the SEC for more information regarding the factors that could cause actual results to differ materially from these projections or expectations. We do not plan on publicly updating or revising any forward-looking statements during the quarter. We will also refer to non-GAAP financial measures, such as EBITDA, adjusted EBITDA, adjusted net income, and free cash flow and net debt. You can find the reconciliations to the most directly comparable GAAP financial measures in our earnings release, which has been posted to our website. It is now my pleasure to turn the call over to Simon.

Thanks, Jeff, and good morning, everyone. Let's begin on slide three. The macroeconomic challenges and subsequent uncertainty experienced in the first half of 2019 persisted in the third quarter. Notwithstanding these headwinds, most of which are beyond our control, Venator delivered $50 million of adjusted EBITDA and $0.08 of adjusted diluted earnings per share. Turning to slide four on our titanium dioxide segment. In the third quarter, our titanium dioxide segment generated $51 million of adjusted EBITDA compared to $75 million in the third quarter of 2018. The average CO2 selling price declined 7% in local currency compared to the prior year, but remained stable on a sequential basis for the second successive quarter. This was primarily a result of managing our supply network and our tailored customer approach to reduce price volatility. On a year-over-year basis, prices for functional TO2 products were most impacted in Europe, which was the highest-priced region in the prior year period. As expected, prices in Europe shifted downwards to that of the more stable North American region, and we exited the third quarter with average prices in Europe below that of the North American region on a US dollar basis. Prices in Asia also moved lower compared to the third quarter of 2018, driven by weaker demand, primarily in China. North American prices remain the most stable. Average TO2 prices remained stable compared to the prior quarter. Specialty TO2 pricing has remained more resilient when compared to functional TO2 products. In the third quarter, pricing was stable compared to the prior year period amid modest stocking in certain products related to trade uncertainty. The relative demand stability and pricing dynamics underscore our commitment to transferring production from Pori to other sites in our network, ultimately strengthening our leadership position in these higher value applications. Titanium dioxide volumes increased 12% compared to the prior year period and broadly across applications and geographies. The increase was primarily a result of increased sales of new differentiated products, improved availability of certain products, and high demand compared to the prior period, which was significantly impacted by customer inventory reductions. TIO2 volumes declined compared to the prior quarter at the high end of our average seasonal range and broadly across end-use applications, including coatings, paper, and plastics. The regional trends impacting the TIO2 industry are well defined. Here are some additional comments by regions. As mentioned on prior earnings calls, in North America, we sell our TO2 primarily to smaller customers and into non-slurry applications. Demand normalized in the third quarter of 2019 and was supplemented by increased sales of new differentiated products. The average TO2 selling price in North America was stable in the third quarter compared to the prior quarter, which reflects our sold-out position at our manufacturing site in Lake Charles and our tailored customer approach Asia remains a significant consumer of TiO2 and an important global market for the industry and is highly fragmented. Demand in China remained weak in the third quarter, though demand in Asia, excluding China, was comparatively stable. TiO2 prices in Asia were stable sequentially, reflecting our differentiated market position in the region. Our exposure to Asia is comparable in size to our position in North America and limited to our manufacturing facility in Malaysia and supplemented by exports of specialty and differentiated CO2 to the region. Europe is our largest market for CO2 and accounts for approximately half of the segment's revenue. Compared to the prior year period, volumes in Europe increased modestly, benefiting from higher sales of new differentiated products and improved demand compared to the third quarter of 2018, when customers reduced their inventory levels. As mentioned earlier in my remarks, the average TO2 price in the European market declined compared to the prior year quarter, but remained stable on a sequential basis. In the third quarter, we incurred higher variable cost inflation, including higher ore material costs, which were mostly from high-grade ores and a negative contribution with lower fixed cost absorption as we manage our production network. These headwinds were offset by a $6 million non-recurring benefit from a change in plant utilization rates, which increased our overhead absorption and corresponding inventory valuation, and a $5 million benefit from our business improvement program. Notwithstanding near-term pressures and expected seasonal headwinds, longer-term TO2 industry fundamentals remain favorable. We are focused on enhancing our specialty TO2 portfolio and delivering the benefits of our business improvement program, improving our competitiveness throughout the TO2 cycle. I will provide more comments on the outlook shortly. Turning to slide five and performance additives. Revenues declined 10% compared to the prior year period, driven by an 8% decline in volumes, a 2% unfavorable impact from foreign currency, and a 2% headwind from MIPS, partially offset by a 2% increase in the average selling price. I will provide some additional comments on the three main businesses within performance additives. Color pigments volumes were primarily impacted by lower demand for products into construction-related applications in North America and lower plastics demand. The impact from lower volumes was offset by higher average prices, which primarily reflects the partial pass-through of tariffs related to current US and China trade policies. We benefited in the quarter from our prior self-help actions and expect to continue to benefit from these ongoing and aggressive cost and operational enhancement efforts in 2020. Timber treatment volumes declined compared to the prior year period, primarily due to lower sales to a large customer as a result of a lost tender in the third quarter of 2018. The average selling price increased slightly in the third quarter due to the mix of sales within the business. In the fourth quarter, we will lap this year-over-year volumetric headwind, and the impact will be substantially muted. Functional additive volumes were negatively impacted by weaker than expected demand for automotive and electronics applications due to the continuation of customer destocking in these channels. We expect weaker demand conditions to continue. The performance additive segment generated $13 million of adjusted EBITDA in the quarter, up $1 million compared to the prior year quarter and a sequential decline of $3 million. The muted year-over-year growth in EBITDA was primarily attributable to higher pricing and lower costs, including the benefits from our business improvement program and offset by weaker than expected sales volumes resulting from the headwinds I described earlier, and principally due to lower volumes in our functional additives business. In the third quarter, we had a $2 million non-recurring benefit to EBITDA from a change in plant utilization rates, which increased our overhead absorption. Over the past two years, we have taken meaningful steps to streamline our cost structure within each of the businesses. In light of more severe market forces, especially within automotive and electronics end uses, we are tempering our estimate for segment profitability. We now expect performance additives EBITDA in 2019 will be less than the $62 million of EBITDA generated in 2018. We conducted a comprehensive review of color pigments business in the third quarter. As a result, we have identified meaningful self-help measures that are intended to improve the profitability of the business over the next three years by approximately $10 million for a similar amount of investment. The improvements we have identified are a combination of cost savings and efficiencies and are incremental to 2019 expected results. We believe these actions will augment the competitiveness and cash generation of the color pigments business. We believe there are synergies of a complementary portfolio of offerings to provide our global and diversified customers. The color pigments business has attractive organic and inorganic growth prospects, and actions we have taken and plan to take will further optimize its cost structure and reinforce its free cash flow generation. In the interim, we continue to engage with those parties who have expressed interest in acquiring the business. To enhance shareholder value, we have retained Citi as a financial advisor to explore a potential sale of the Color Pigments business. The process is ongoing, and therefore we will not be providing more commentary on the matter. With that, I will now pass the call over to Kurt to discuss our financials. I will then return to provide comments on the outlook. Kurt?