Q3 2025 Trinseo PLC Earnings Call

Speaker #2: Good morning , ladies and gentlemen , and welcome to Third Quarter 2025 Financial Results conference call . We welcome the management team , Frank Bozich president and CEO David Stacey , Executive Vice President and CFO and Van Kessel , senior vice president and corporate finance and investor relations .

Speaker #2: Today's conference call will include brief remarks by the management team, followed by a question and answer session. The company submitted its press release along with its presentation slides after the close of market on Thursday, November 6th.

Speaker #2: These documents are posted on the company's Investor Relations website and furnished on form 8-K filed with the Securities and Exchange Commission . If anyone should require operator assistance during the call , please press Star then zero on your telephone .

Speaker #2: I will now hand the call over to be Kessel . Please go ahead .

Speaker #3: Thank you . Calvin and hello 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 .

Speaker #3: Our disclosure rules and cautionary note 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 .

Speaker #3: 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 one of our Annual Report on Form 10-K or in our other filings made with the Securities and Exchange Commission .

Speaker #3: The company undertakes no obligation to update or revise its forward looking statements . Today's presentation includes certain non-GAAP financial measurements . The reconciliation of these measurements to corresponding GAAP measures is provided in our earnings release and in the appendix of our investor presentation .

Speaker #3: A replay of the conference call and transcript will be archived on the company's Investor Relations website shortly following the conference call. The replay will be available until November 7, 2026.

Speaker #3: Now , I would like to turn the call over to Frank Bozich .

Speaker #4: Thanks . Bea , and welcome to our third quarter 2020 earnings call . I'd like to begin by sharing some information on trade flows in our chemistries .

Speaker #4: As we believe this is instructive for understanding how the end markets we serve have reacted to tariff uncertainties . We've included some of this information on slide four of our presentation materials .

Speaker #4: In general, we saw a sharp increase in imports of Asian polymers to both the U.S. and Europe, beginning in Q1. We believe this was a reaction to the threatened tariff levels that ultimately were announced in early April.

Speaker #4: And an attempt to fill supply chains in the US ahead of the tariffs being implemented and a redirection of trade flows to Europe from Asia .

Speaker #4: Because of slowing demand in China, with respect to the US, on the slide for you can clearly see a significant increase in imports of ABS, primarily from Asian producers, beginning in the first quarter to get ahead of the tariff implementation.

Speaker #4: Exports from the US of both ABS and PMMa decreased versus prior year , and the decrease was most pronounced in the exports to Canada and Mexico .

Speaker #4: A similar dynamic occurred in Europe , where Asian material that is typically consumed in China was redirected to the European market , putting margin pressure on the more standard grades of ABS and PMMa .

Speaker #4: These industry trade flow dynamics continued into the third quarter, resulting in lower volumes versus the prior year, but similar volumes quarter over quarter.

Speaker #4: Whether these new levels of demand are transitory or structural remains to be seen . However , late in the third quarter and into the fourth quarter , we are seeing an increased run rate of sales over more formulated , higher margin products .

Speaker #4: That is higher than year to date . The year to date average and prior year levels . In the case of our more formulated PMMa resins , the year over year increase in volumes was over 10% .

Speaker #4: Beginning in late Q3 . And this is continued into Q4 . We do believe there is a drive to reshore demand , even at slight premiums to the import parity price to de-risk longer Asian supply chains and address potential tariff impacts in both Europe and the US .

Speaker #4: Concerning our focus on sustainability , I want to highlight the fact that the European Parliament finalized its vehicle end of life directive in September this mandates that new vehicles must contain 20% recycled plastic within six years , 15% of which must come from end of life vehicles .

Speaker #4: And this increases to 25% within ten years . This action formalizes the EU's drive for greater product supply chain circularity . We have remained committed to pursuing investments to scale up our technology for our circular recycled content containing platforms , and expect these regulations to drive demand in the near term .

Speaker #4: Our pilot plants for recycled polycarbonate ABS and MMA are sold out . The volumes are still small , but will become more meaningful as we ramp up year to date .

Speaker #4: Our recycled content containing plastic sales grew 2% across all applications with our recycled solutions and engineered materials growing at 12% . Before I hand the call over to Dave , let me comment on our press release from the 6th of October in which we announced the discontinuation of Virgin MMA production in Italy and the intention to close our polystyrene production facility in Germany .

Speaker #4: We took this difficult decision after carefully considering our options and the impact on our employees . However , it is clear to us that these assets will not be competitive in the long term .

Speaker #4: Our Italy site will remain focused on PMMA resin production and will also be the site for our investments in recycled MMA, pending Works Council negotiations in Germany.

Speaker #4: These projects should lead to $30 million of EBITDA improvement next year , and the cash savings will exceed restructuring costs beginning in 2026 .

Speaker #4: Now , I'd like to turn the call over to Dave .

Speaker #5: Thanks , Frank . We ended the third quarter with $30 million of adjusted EBITDA , which was impacted by $9 million of unfavorable raw material timing and negative equity affiliate earnings from Americas Styrenics due to an $8 million headwind from repair and other costs related to an unplanned outage that occurred in June at the segment level , engineered materials .

Speaker #5: Adjusted EBITDA was flat versus prior year , as fixed cost improvements and slightly higher volumes and PMMa resin for building and construction and automotive applications were offset by lower volumes in medical on medical sales .

Speaker #5: I want to remind you that we reported increased sales last year related to the closure of our stored polycarbonate site and customers stocking up prior to the shutdown .

Speaker #5: LaTeX binders adjusted EBITDA was $9 million below prior year , mainly driven by lower volume in Europe . Paper and board applications , as well as significant pricing pressure in Europe and Asia .

Speaker #5: Our higher-margin targeted growth platforms in case and battery binders continue to outperform the market. Sales volume in battery binders was up 27% versus the prior year for the quarter.

Speaker #5: As we continue to enhance our portfolio, including new customer wins and anode binder applications, we're currently working closely with five of the 15 largest lithium-ion battery producers in the world.

Speaker #5: Lastly, Polymer Solutions' adjusted EBITDA was $19 million below the prior year, driven by $9 million of unfavorable timing. Lower ABS volumes and an unfavorable mix were related to the closure of our polycarbonate plant.

Speaker #5: Third quarter free cash flow was -$38 million , and we ended the third quarter with $346 million of available liquidity . The fourth quarter is typically our seasonally strongest quarter for free cash flow due to a working capital release .

Speaker #5: We expect our free cash flow in the fourth quarter to be positive at $20 million, and our year-end liquidity to be over $350 million.

Speaker #5: Now, I'll turn the call back over to Frank.

Speaker #4: Thanks , Dave . Looking forward , we expect fourth quarter 2025 adjusted EBITDA of roughly 30 to $40 million . And as Dave mentioned , positive free cash flow of $20 million .

Speaker #4: This forecast assumes a continuation of the year to date market dynamics and a somewhat exaggerated seasonal year end effect . As well as 5 to $10 million of negative raw material timing .

Speaker #4: We will remain intensely focused on what's under our control , including improving our free cash flow in the short and long term through continued inventory management , restructuring activities and other actions .

Speaker #4: Additionally , we continue to believe that there are at least five triggers that could improve the demand environment . First , trade certainty in any form would improve consumer confidence and provide a landscape for new investments .

Speaker #4: Second , a continuation of Federal Reserve interest rates cut interest rate cuts , which will lower our own interest expense and improve demand for housing and consumer durables .

Speaker #4: Third , a resolution of the conflict in Ukraine . Fourth is a rationalization of higher costs , less environmentally sound chemical assets in Asia .

Speaker #4: And lastly , stronger support for the EU chemical industry . As outlined in the EU Chemical Industry Action Plan . Thank you . And now we're happy to take your questions .

Speaker #2: Ladies and gentlemen , we will now begin the question and answer session . I would like to remind everyone to ask a question .

Speaker #2: Please press the start button followed by the number one on your telephone keypad . If you would like to withdraw your question , please press star one again .

Speaker #2: One moment, please. For your first question, your first question comes from the line of Alex Kelsey of Wells Fargo. Please go ahead.

Speaker #6: Hey , everybody . Thanks for hosting the call . And taking the question . I wanted to start with slide four on the trade flows .

Speaker #6: I think one of the dynamics we've seen among another among among among . Excuse me , a number of chemicals companies is just structurally higher imports of China products into Western markets .

Speaker #6: That's just structurally depressed . Pricing and influence demand . So I'm just curious , is it your view that this is transitory in nature , truly just getting ahead of tariffs , or are you seeing just a structural difference in how China is behaving with regard to your markets ?

Speaker #4: So yeah , thanks for the question . Actually it the we don't know whether it's structural or transitory . It's too early to tell .

Speaker #4: As we said in the prepared comments , but I would tell you that the in our chemistries , the biggest I guess the more problematic dynamics are the countries that are we're seeing the most increase in inflows are actually Taiwan and Korea and in our chemistries , we believe that , you know , those their domestic markets don't support the significant capacity that's been built over the years .

Speaker #4: And in places where they used to have an outlet to supply China, that volume or that surplus capacity is now being redirected to Europe and North America. I would point out that at least our analysis would indicate that those are higher-cost assets in these chemistries.

Speaker #4: The the other thing I would point out , that's problematic from a trade flow standpoint is the use of using imports of resin produced in China and Korea into Mexico .

Speaker #4: That can be compounded , you know , relatively lightly compounded locally and then brought into the US under the Usmca tariff convention , tariff free .

Speaker #4: Now , our understanding is from our trade associations and our discussions that this sort of pathway or loophole in Usmca is a goal to be closed by the administration .

Speaker #4: But it would that would be helpful in our value chains . And , you know , that's where China Chinese products . We see more of the impact of Chinese flow into into Mexico .

Speaker #6: Do you have any perspective of like within PMMa and ABS , maybe this is a tricky one , but you know , how much of the market Taiwan , Korea , China represents today versus I don't know , 12 months ago , 24 months ago , whatever the right time frame might be .

Speaker #7: Well .

Speaker #4: I can't precisely answer what share of the market that they represent , but what I would tell you is that the import volumes on , for example , you know , the percentage increase in imports to , for example , from into Europe , from South Korea in the first half of 2025 was up 18% over prior year .

Speaker #4: And in Q2 , it went up to 26% increase over prior year . The . And they are by far the biggest importer of ABS into Europe .

Speaker #4: In the case of PMMa imports from , you know , imports from South Korea were up . You know , marginally in the first half .

Speaker #4: You know , into Europe . But in the case of imports into the US , the the biggest import , you know , increase in imports .

Speaker #4: Sorry , the biggest imports increase in imports came from South Korea , in Taiwan for ABS , where , you know , it was approximately 23% increase .

Speaker #4: But then Mexican product increased 75% . So that was that pathway that we were talking about . Now I want to point out , though , that , remember , we make mass abs and these are basic generally basic grade or standard grade polymers that are coming in under these conventions that are more broadly used .

Speaker #4: And the less specified or formulated products.

Speaker #6: Got it . Okay . And then on the or on the PMMa comment , the formulated PMMa comment I thought the commentary about seeing sequential ramp into Q4 was positive .

Speaker #6: One has just something changed in that market from a supply or demand dynamic to suggest we're at trough and rising off trough levels , and then within the M segment , like what percentage of that is , is , you air quotes formulated PMMa .

Speaker #7: So .

Speaker #4: Yeah , I think it's too early to , you know , we don't know that the market dynamic is changing necessarily . It's too early to tell .

Speaker #4: And it like I said , this is a late Q3 early Q4 dynamic that we observed . And we're watching it and trying to understand it .

Speaker #4: We believe that there is , you know , an effort on behalf of the many of the customers in North America and Europe to de-risk their supply chain , you know , from a complexity standpoint and also , you know , with regard to potential tariffs or trade .

Speaker #4: Barriers in North America and Europe . So I guess at this point , that's we're watching it . But , you know , again , it was good to see that increase over prior year .

Speaker #6: And then to that second question that I asked in terms of however you want to define it , like what percentage of revenue slash EBITDA slash volumes in M , would you define as formulated ?

Speaker #4: Yeah , I wouldn't disclose that . You know , specifically it's it's a material part of our M segment . And , you know but I you know , we wouldn't share that information .

Speaker #4: Generally .

Speaker #6: Okay . And then on AMC I one question maybe accounting related . But if the if the shutdown unplanned maintenance was taken in Q2 , I'm curious why there's an impact on Q3 , EBITDA and then more generically , can you just talk about , you know , what's being done within AMC to sort of rightsize that business ?

Speaker #6: Just given how underperforming it's been this year ?

Speaker #5: Alex , this is Dave . So the unplanned outage occurred at the at the end of the second quarter in June . But you know and it was related to this to the production of styrene .

Speaker #5: So with that forces , you know which which is obviously upstream to polystyrene . So what they have to do then is go out and buy styrene .

Speaker #5: Obviously at a cost higher than what they can make it for . And you know , those increase that increase cost of goods sold in this case , you know , goes through the P and L in the second , in the third quarter .

Speaker #5: Right . So there's so there's both repair costs that are included in the in the so the total impact for the year for AMC was 10 million or excuse me , the total impact to our equity income was 10 million .

Speaker #5: 2 million of it was in June . And 8 million of it was in the third quarter . And the composition of that is both the cost of repair .

Speaker #5: But also the higher cost raw materials from the styrene that they had to buy going through the PNL . So look and it related to the second question about what are we doing to rightsize it ?

Speaker #5: I mean , look , I don't think we're doing . I don't think anything is necessary to rightsize the business . They've got two styrene units , you know , that are very competitively positioned on the global cost curve for styrene .

Speaker #5: 70% of styrene . They produce they they consume internally in polystyrene downstream . And the other 30% goes into the merchant market . But again they're on the you know , the left side of the cost curve .

Speaker #5: So look I don't think there's anything necessary to do there from a right sizing perspective . Clearly styrene is long globally . I mean there's you know , it's why we exited , you know , our European plants .

Speaker #5: So styrene margins are lower . You know , a lot lower than they used to be . But I you know , I don't think a necessary step there is going to be any , you know , capacity rationalization okay .

Speaker #6: That's helpful . And then last one for me , if we like , when we were entering 2025 and I understand things have changed .

Speaker #6: You know , the expectation was , you know , flat volumes kind of started us at 200 million ish of EBITDA plus cost savings got us to something closer to 300 , if I'm remembering correctly .

Speaker #6: I know it's probably early on 2026 , but , you know , again , it feels like we're lower for longer . Maybe troughing .

Speaker #6: But if you kind of take some of that same analogy , you know , where the business is forecasted to be at the end of 2025 .

Speaker #6: Like all else equal in like a , you know , up 10% in volume , in volume environment , down 10% , flat , you know , any range of outcomes for what we could think about for 2026 .

Speaker #7: So .

Speaker #4: Yeah , maybe let me tackle the last thing first . So we've said this consistently that , you know , a at 10% volume increase across the portfolio results in about $100 million of EBITDA .

Speaker #4: And so , you know , again , we're not prepared to talk about , you know , we don't have a view on 2026 or prepared to give any guidance for 2026 .

Speaker #4: But I think it might be helpful to go back to , you know , how we were as we entered the year , how we thought about it , and , you know , our expectation for significant increase was really in 2025 over 24 was driven by five factors .

Speaker #4: One was stable , volume number two was the disposition . The sale of our polycarbonate assets to Deepak . The also known business wins that we had as as well as you know , a more normalized earnings from AMC as well as the cost savings initiatives that we announced last year .

Speaker #4: What I would tell you is that we got the known business wins or the incremental business wins in our downstream markets . We delivered the cost savings , and we executed on the deep sale where we had a shortfall versus our expectation was on the more normalized earnings from AMC .

Speaker #4: And then the volume development that occurred . You know what we would attribute to really global tariff uncertainty . So , you know , again , I think what's in our control , we've done a good job of managing .

Speaker #4: But , you know , that's sort of how this year developed . And I again , to premature it's premature for us to give you guidance for next year .

Speaker #2: There are no further questions at this time . And with that , ladies and gentlemen , concludes today's call . We thank you for participating .