Q1 2025 Trinseo PLC Earnings Call
Okay.
Yeah.
Speaker Change: Good morning, ladies and gentlemen, and welcome to the trends you know first quarter 2025 financial results Conference call. We welcomed the trends you know management teams, Frank <unk>, President and CEO, David Stacy <unk> Executive Vice President and CFO and B Van Castle, Senior Vice President corporate Finance and Investor Relations.
Today's conference call will include brief remarks by the management team followed by a question and answer session.
Speaker Change: The company distributed its press release, along with its presentation slides after close of market on Wednesday may 7th. These documents are posted on the company's Investor Relations website and furnished on a form 8-K filed with the Securities and Exchange Commission.
Speaker Change: If anyone should require operator assistance during the call today. Please press Star then zero on your telephone.
Ben Kessel: I'll now hand, the call over to be then kessel.
Speaker Change: Okay.
Ben Kessel: Thank you, Greg and Hello, everyone. At this time all participants are in listen only mode. After a brief remarks instructions will follow to participate in the question and answer session.
Speaker Change: Our disclosure rules and cautionary notes on forward looking statements are noted on slide two.
Speaker Change: During this presentation, we may make certain forward looking statements, including issuing guidance and describing our future expectations.
Speaker Change: We must caution you that actual results could differ materially from what is discussed described or implied in these statements.
Speaker Change: Factors that could cause actual results to differ include but are not limited to risks.
Speaker Change: Risk factors set forth in item one a of our annual report on Form 10-K or in our other filings made with the Securities and Exchange Commission.
Speaker Change: The company undertakes no obligation to update or revise its forward looking statements.
Speaker Change: Today's presentation includes certain non-GAAP financial measurements.
Speaker Change: A reconciliation of these measurements to corresponding GAAP measures is provided in our earnings release and in the appendix of our Investor presentation.
Speaker Change: A replay of the conference call and transcript will be archived on the company's Investor Relations website. Shortly following the conference call.
Speaker Change: The replay will be available until may eight 2026.
Frank Boykin: Now I would like to turn the call over to Frank Boykin.
Frank Boykin: Thanks, Pete and welcome to our first quarter 2025 earnings call.
Speaker Change: Core business results in the first quarter were in line with expectations and sequentially higher due to seasonality and prior quarter customer destocking.
Speaker Change: Despite persistent market weakness the first quarter was <unk>, our seventh consecutive quarter of improved year over year adjusted EBITDA.
Speaker Change: Driven by various management actions, we took early in this industry downturn.
Speaker Change: Against the backdrop of trade uncertainty and lower consumer confidence our adjusted EBITDA improved to $65 million. This is up $20 million versus prior year as a result of the restructuring actions, we've taken improved business mix and the polycarbonate licensing agreement, we previously announced.
Speaker Change: Our focus has been on executing actions aligned to our transformation strategy and driving growth in areas that represent opportunities in any business environment.
Speaker Change: Levers, we possess to continue growing your more specialized technologies are specifically related to geographic expansion material replacement process change and sustainability.
Speaker Change: With this focus in the first quarter, we grew our volume in recycled content containing products by 33% over prior year consumer electronic applications by 43% PMMA resin volumes in Asia more than doubled and case volumes grew by 3% and a flat demand environment.
Speaker Change: <unk>.
Speaker Change: Last year, we announced our proprietary asset and technology license deal with the pet Chem Tech.
Speaker Change: And with the recognition of $26 million in licensing income in Q1 this year.
Speaker Change: Pleased to say the projects are on track and delivering in line with their expectations.
Speaker Change: In total we estimate these projects are worth $52 million as our two companies work together. We continue to view. This agreement is mutually beneficial and see this as the initial steps of our strategic and collaborative partnership in India.
Speaker Change: Before I turn the call over to Dave I'd also like to talk a bit about China as a growth market.
Speaker Change: We will cover tariffs later on.
Speaker Change: While we believe India will be a broad growth opportunity for us in China, we've been more focused on our more specialized products in our portfolio.
Speaker Change: For the last couple of years. The team has been working to grow or more specialty PMA products and these efforts are starting to pay off that plus our sustainable solutions for consumer electronics are important growth drivers for us in China.
Speaker Change: Combined in Q1, they delivered 50% volume growth versus prior year, and we are adding resources for further growth.
Dave: Ill turn the call over to Dave.
Dave: Thanks, Greg.
Dave: To give a little more color on the first quarter and what we're seeing in the early part of Q2.
Dave: Was higher than prior year, despite lower volumes sold into automotive and building and construction applications.
Dave: This was more than offset by higher margins from moderating input costs.
Dave: Particularly natural gas in Europe, as well as better sales mix.
Dave: Latex binders adjusted EBITDA was similar to prior year, despite lower volume.
Dave: Most of this volume decline was into paper and board applications in China, where are you seeing demand weakened considerably since the tariff and assets of.
Dave: Offsetting this was improved mix.
Dave: With higher sales in case in battery as well as benefits from our cost savings initiatives.
Dave: Lastly, polymer solutions adjusted EBITDA was also above prior year, despite significantly lower volume.
Dave: Due to $26 million of polycarbonate licensing income in the quarter and our own polycarbonate restructuring actions.
Dave: Segment volumes were down 15% driven by lower automotive sales in all three regions as well as uneconomic volume in polystyrene that we have declined to accept for the time being.
Dave: First quarter free cash flow was negative $119 million and included $25 million of outflows related to our refinancing that closed in January.
Dave: Aside from this we had a typical seasonal working capital outflow of $84 million as we rebuilt receivables after a very slow end of Q4.
Dave: We expect free cash flow in the second quarter to be about breakeven and then positive in the second half of 2025.
Frank Boykin: Now ill hand, the call back over to Frank.
Dave: Steve.
Dave: Before I get into our outlook I'd like to highlight our potential exposure to the proposed tariffs over 95% of our product sales are produced within the region in which they are sold so we anticipate little direct impact there.
Dave: That said tariffs or disruptions to trade have created an uncertain demand environment, particularly in China.
Dave: And for the automotive industry.
Dave: Youre seeing these impacts in China, China early in the second quarter, where tariff uncertainty has had a significant impact on demand for many of the industrial applications we supply.
Dave: On the flip side tariffs may have a positive pricing and demand impacts in certain regions, where we're a local producer.
Dave: For example in 2020 for the U S. ABS market was about 400 kilotons.
Dave: Which over 30% were satisfied by imported products most of which came from Asia.
Dave: Last year between 10, and 15% of PMMA resin and surface applications in the U S were supplied by Asian imports.
Dave: Lower imports can obviously have both positive volume and higher price impacts.
Dave: The largest unknown around tariffs is there impact on overall demand which could be significant.
Dave: In December last year, we furnished full year 2025 guidance in connection with the announcement of our debt refinancing transaction. Since then the economic and geopolitical conditions have become more uncertain and even more difficult to predict therefore, we are withdrawing our previously furnished full year guidance and we will.
Dave: Only provide an outlook for the upcoming quarter.
Dave: We expect second quarter, adjusted EBITDA to be between $55 million and $70 million led by a seasonally stronger volumes and building and construction lowered costs in engineered materials and improved <unk> earnings.
Dave: We are encouraged by our first quarter performance and we believe we are seeing the impact of our restructuring actions and the transformation strategy reflected in our results.
Dave: We continue to gain traction with our specialty and sustainable offerings and remain committed to our focus on higher growth and higher margin business, which we can uniquely serve.
Dave: In the near term, we are confident in our ability to navigate these uncertain business conditions and positively manage those things in our control and now we're happy to take your questions.
Dave: Okay.
Dave: Okay.
Speaker Change: Thank you and just a reminder, if you'd like to ask a question today. Please press star one on your telephone keypad once again star one.
Dave: And we will just wait a moment to assemble the Q&A roster.
Speaker Change: And it looks like our first question today comes from the line of Hassan Ahmed with Alan Big Global Partners Hassan. Please go ahead.
Hassan Ahmed: Good morning, Frank and Dave.
Dave: Just a question around <unk>.
Dave: Some of the volume of patents you guys are seeing you know you you you guys, obviously talked about that.
Dave: E M business and.
Dave: Consumer electronics sort of volumes being up 43% over there. So you know my question basically is that you know.
Dave: Did you see some sort of uneven sort of volume patterns.
Dave: Head of.
Dave: Some of these tariffs being implemented.
Dave: Just trying to get a sense of the sustainability of some of these volumes you guys are seeing.
Hassan Ahmed: Yeah Hassan thanks for the question.
Dave: We looked at this really closely and.
Dave: We don't really see any pre buying to beat the tariff sort of lumpiness in the demand in fact, the Q1 demand has continued into Q2 so far.
Dave: And if you think about this business.
Dave: We've made a big effort over the past several years.
Dave: To win new applications, and new customers with recycled material. So.
Dave: Again, we.
Dave: We see it right now we don't see any indication that it was distorted by pre buying to beat tariffs.
Dave: Understood very helpful and just two really quick ones one on the free cash flow guidance for Q2.
Dave: You guys talked about being sort of.
Dave: The breakeven free cash flow wise, how comfortable are you with obtaining that with this sort of guidance range you've given so that's one side of it and the other side of it is what are you guys seeing in terms.
Dave: Of industry shutdowns, particularly on the styrene polystyrene side of things.
Dave: Yes.
Dave: Morning, It's Dave I'll answer the first part look we're pretty we're confident in being able to hit that.
Dave: We've obviously, we've got it we've obviously got one month in the books already.
Dave: And.
Dave: Some visibility into into May as well I mean, we do have we.
Dave: We do have working capital levers that we can take that.
Dave: We can pull that can even manage very closely.
Dave: Particularly around inventory so.
Dave: Now Q1 is a seasonally weak working capital quarter for us.
Dave: Because of a working capital build variable compensation payments things like that so.
Dave: Yes, I would say sitting here, where we are today.
Dave:
Dave: I think we feel pretty confident in Q2, the other thing I'll point out.
Dave: Yeah.
Dave: Is that related to the Deepak.
Dave: Polycarbonate licensing transaction with.
Dave: Did collect $21 million.
Dave: In April so you've already collected that and Thats obviously.
Dave: Part of that included in the guidance as well.
Hassan Ahmed: Yeah Hassan regarding your second question on the impacts of styrene closures.
Hassan Ahmed: Frankly, we don't really see a big impact any negative impact to our business obviously because.
Hassan Ahmed: We're no longer styrene producer in Europe, and the European market is significantly oversupplied.
Hassan Ahmed: So our ability to source material hasnt been.
Hassan Ahmed: Hampered in any way.
Hassan Ahmed: And.
Hassan Ahmed: As it relates to <unk> is a very competitive has one of the best cost positions in the industry and.
Hassan Ahmed: They continue to produce the styrene monomer has been a very good business for them. So we don't really see any impacts to our business.
Speaker Change: Helpful. Thanks, so much Frank and Dave.
Hassan Ahmed: Yes.
Hassan Ahmed: Alright, Thank you Hassan.
Speaker Change: And our next question comes from the line of Matthew Blair with Tpa Itch Matthew. Please go ahead.
Matthew Blair: Thank you and good morning, we had two questions on <unk> can you talk a little bit more about the performance in the first quarter I think the slides mentioned some headwinds from timing issues, but were there also headwinds from outages both on the styrene as well as polystyrene side and then the second.
Speaker Change: Question is there any update on <unk>.
Speaker Change: <unk>.
Speaker Change: El process.
Speaker Change: Maybe let me let me just take the last question first and then I'll hand, the Dave can talk about the performance in the quarter.
Speaker Change: So look.
Speaker Change: Fully committed to market or market M sty.
Speaker Change: And monetize this asset.
Speaker Change: We're waiting our focus is to maximize the value and so as such we're going to wait for the best.
Speaker Change: Valuation environment that we can get and.
Speaker Change: When that comes we'll begin actively marketing the asset.
Matthew Blair: Matthew so in the.
Matthew Blair: Let me start I guess with the as you mentioned the timing and just explain the cause of that as it relates to <unk>.
Matthew Blair: The <unk>.
Matthew Blair: In North American benzene prices fell <unk>, 30% kind of late in 2024.
Matthew Blair: And I had a timing impact on the Im sorry in Q4, which led.
Matthew Blair: Sure.
Matthew Blair: Kind of bled into Q1 as well.
Matthew Blair: And it was exacerbated by the low volumes low volumes sold.
Matthew Blair: Yes.
Matthew Blair: Both styrene and polystyrene so it takes longer for.
Matthew Blair: That is kind of a lagged effect of the higher priced benzene.
Matthew Blair: Going going through the P&L. So that's what really impacted the first quarter that was about an 8 million dollar impact in the first quarter. They did also accelerate a.
Matthew Blair: A relatively minor turnaround from early Q2 into late Q1 that was about another $2 million impact on the quarter. So the two of those combined are about $10 million.
Impact on Q1, which look they did negative too.
Matthew Blair: If you add back that 10, that's eight I mean thats still a.
Matthew Blair: By any historical standard that's still a weak quarter.
Matthew Blair: <unk> and you are right there wasn't that there was a there was a polystyrene outage at one of their polystyrene sites.
Matthew Blair: That's been resolved.
Matthew Blair: So all of their outage issues have been resolved we do expect.
Matthew Blair: Significantly better results for <unk> in the second quarter than what we've seen in the first quarter.
Speaker Change: Sounds good and then maybe if I could follow up.
Matthew Blair: Could you talk a little bit more about this opportunity and battery binders.
Speaker Change: I don't know if we've seen any mentioned that previously and is this.
Speaker Change: The slides mentioned its related to grid. So I guess this is more.
On the industrial side and not exactly auto's exposure or is that the right interpretation.
Speaker Change: The.
Speaker Change: Yes. So thanks for the question actually we've been investing technical resources in and binders. So we make our latex binders. It goes into the anode of lithium ion batteries.
Speaker Change: And the biggest step and we've been winning.
Speaker Change: New platforms and new awards in that in that area with the various.
Speaker Change: Battery manufacturers and we've been expanding.
Speaker Change: Our qualifications to new batteries.
Speaker Change: Battery producers.
Speaker Change: Round the world now we have.
Speaker Change: Is the sort of a unique advantage in this area. We have a good technology, which we've demonstrated and also we have a global footprint that makes us a bit unique relative to the rest of the suppliers to the industry. So as they expand globally.
Speaker Change: We can supply that binder in each region and so it's been a very very good growth business for us.
And we expect to continue growing because we have.
Speaker Change: With very low penetration of the top 15 suppliers today, and but it's becoming meaningful.
Speaker Change: The applications, we just wanted to point out that some of the applications that we have recently won are related to grid storage and that seems to be getting a lot of traction but.
Speaker Change: We also have solutions and have won business that go into.
Speaker Change: Mobility and automotive batteries so yes.
Speaker Change: Hopefully that answers the question.
Speaker Change: Yes, thank you very much.
Alright, Thanks, Matthew and one last reminder, if you'd like to ask a question again star and the number one on your telephone keypad once again starwood.
Speaker Change: And our next question comes from the line of Laurence Alexander with Jefferies. Laurence. Please go ahead.
Speaker Change: Hey, guys, it's Dan Rizzo on for Laurence So I understand with the seasonality with cash flow and what you expect in the second quarter. You did say that you expect cash flow repository in AR in the second half of the year, but I was wondering if.
Speaker Change: I mean is there a path to getting back to breakeven or positive cash flow for the full year of 2025.
Speaker Change: I guess, what I would the way I would answer that I would point you to slide 13 in our earnings deck and we've showed in this.
Speaker Change: We've shown this slide the past couple of.
Speaker Change: The earnings releases.
Speaker Change: And it's and it's a list of our cash outflows capex interest taxes restructuring costs et cetera.
Speaker Change: And if you add it all up its $370 million. So so I think so our EBITDA would need to be $370 million.
Speaker Change: To be cash flow breakeven for the year.
Speaker Change: No, we're not giving full year guidance, obviously, but.
Speaker Change: Now the other thing I would say related to that is.
Speaker Change: The working capital number in here.
Speaker Change: To the extent.
Speaker Change: To the extent there would be incremental deterioration in the business.
Speaker Change: And EBITDA was lower obviously, we would be able to offset that.
Speaker Change: With with inventory actions.
Speaker Change:
Speaker Change: Yes that would that I think would more than offset frankly.
Speaker Change: And EBITDA deterioration, if we did see that but.
Speaker Change: So that's what I would point to again.
Speaker Change: I apologize.
Speaker Change: Directly answering your question, but since we're not giving annual EBITDA guidance as I, just think thats, the best way to kind of calibrate it for you.
Speaker Change: No. Thanks, Thanks for the color and then is there a possibility or is there.
Speaker Change: Any other licensing deals that could happen with something else or another or another technology. We're working on is that something that that could be just another avenue of growth.
Speaker Change: So I think the simple answer is yes and.
Speaker Change: We see a lot of interest in our <unk>.
Speaker Change: Recycling technologies broadly.
Speaker Change: From the industry and we're scaling those up in demonstrating those at commercial scale. So I think in the future that could also be.
Speaker Change: An opportunity and frankly the polycarbonate.
Speaker Change: Technology is very attractive in a very good technology as demonstrated by the interest from Deepak So.
Speaker Change: Preclude that we could do more in the polycarbonate area too.
Speaker Change: Thank you very much.
Speaker Change: Thanks Laurence.
Speaker Change: And our next question comes from the line of Frank Mitsch with Fermium Research Frank. Please go ahead.
Frank Mitsch: Thank you good morning.
Speaker Change: I wanted to follow up on <unk>.
Speaker Change: <unk>.
Speaker Change: On a normal basis, you said about $8 million in <unk> and you expected it to be materially higher I forget exactly the euphemism to be higher in the second quarter last quarter U.
Speaker Change: You indicated that.
Speaker Change: You thought 2025 would we kind of get us closer to that average of $65 million or so how are you thinking about M site profitability and any orders of magnitude you can provide around that would be very helpful.
Frank: Yes, Frank.
Speaker Change: Like we said last year.
Speaker Change: Average from 2022 or 2020 to 2024 for <unk> was about 60 $68 million of EBITDA contribution and we expect to be much closer to that than we were last year's performance, which by memory was 15.
Speaker Change: No.
Speaker Change: Again.
Speaker Change: Notwithstanding the timing impact.
Speaker Change: The impact that we saw in Q1 I think.
Speaker Change: We still have the confidence in that trajectory.
Speaker Change: Okay, great. So we're going to be mid <unk> mid <unk> or higher by.
Speaker Change: By year end potentially on an Si and <unk>.
Speaker Change: Coming back I mean, one of the highlights was clearly consumer electronics that 43% growth in last quarter. It was up 61% which are not normal.
Speaker Change: Gross so I'm just curious if you could expand upon.
Speaker Change: That business and kind of orders of magnitude as well in our portfolio. Because obviously these numbers are pretty eye popping.
Speaker Change: Yes.
Speaker Change: So let me give you examples of where we're supplying into that those applications. So almost.
All consumer electronics brands or products that we would supply into and if you.
Speaker Change: <unk>.
Speaker Change: So this could be the device itself it could be chargers it could be.
Speaker Change: Any number of other products and one of the big drivers in consumer electronics is sustainability of circularity and we've been able to meet all of the technical requirements with very high levels of recycled material contained in our product. So.
Speaker Change: Upwards of over 50% recycled content.
Speaker Change: We believe we have a unique advantage because of that so I would yes.
Speaker Change: If you name a brand or if you think of a brand.
Speaker Change: We're probably in some of their devices.
Speaker Change: With that material with with.
Speaker Change: Our sustainable solution and if you go to page.
Speaker Change: Ken.
Speaker Change: In our presentation, you can see that.
Speaker Change: It's not insignificant, it's 20% of our Asia Pacific revenue is consumer electronics.
Speaker Change: To give you a sense as one of the more higher margin.
Speaker Change: Businesses more specialized businesses that we have in the portfolio. So that you can do some of the arithmetic to get to in order of magnitude.
Speaker Change: How big that is.
Speaker Change: Yes, so it was interesting because Asia Pacific was down significantly and yet this.
Speaker Change: Business was up significantly so obviously the rest of Asia Pacific was.
Speaker Change: Was was very problematic.
Speaker Change: Well so yes.
Speaker Change: The rest of the Asia, what was driving Asia Pacific from a significant.
Speaker Change: The significant downward trajectory was sales that go into appliances. So you could see.
Speaker Change: Clients as well as for our ships products.
Speaker Change: <unk> is a big polystyrene is a big application for us in Asia, and then paper and board.
Speaker Change: Was is also got off to a very slow start and we think that a lot of that is tariff driven.
Speaker Change: No.
Speaker Change: But those tend to be the lower margin parts of our business also so.
Speaker Change: <unk>.
Speaker Change: No.
Speaker Change: I would say in in Asia, It was where we saw.
Speaker Change: Significant negative volume.
Speaker Change: Developments year over year was in the appliances in paper and board.
Speaker Change: Then obviously in the other areas the more formulated products improvements.
Frank: Frank I just wanted to add one thing just related to the comment on volume.
Frank: Yes. So if you look at Asia in particular for US polystyrene is about 45% of our total Asia volumes. So when we're talking about <unk> as a whole and the volume changes as a whole.
Frank: Polystyrene kind of dwarf just because of the market size immediately dwarfs.
Speaker Change: Kind of Overwatch is by a large margin.
Speaker Change: Volume changes in consumer electronics for example that have far higher margins, obviously, but the volumes just aren't there. So so frank's right in Asia is where we've seen two things, that's where we've kind of walked away from the uneconomic business.
Speaker Change: On a year over year basis.
Speaker Change: It's also where we the home appliance the export market for appliances out of China has been cut has been.
Speaker Change: Clearly affected by the tariffs so that's the real driver of the polystyrene decline on a year over year basis.
Speaker Change: And then we've got latex binders, as well, which goes into paper and board applications in China is down.
Speaker Change: Kind of mid teens year over year.
Speaker Change: And I think Thats also really.
Speaker Change: Kind of been.
Speaker Change: Exacerbated by the tariff announcements.
Speaker Change: Okay terrific. Thanks, so much.
Frank Boykin: Alright, Thank you Frank.
Speaker Change: And that does conclude today's question and answer session as well as today's call. So thank you all for joining US and you may now disconnect have a great day everyone.
<unk>.
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