David Stasse - Vice President, Treasury and Investor Relations Christopher Pappas - President and Chief Executive Officer Barry Niziolek - Executive Vice President and Chief Financial Officer.

David Begleiter - Deutsche Bank Dylan Campbell - Goldman Sachs Frank Mitsch - Wells Fargo Securities Hassan Ahmed - Alembic Global Advisors Matthew Blair - Tudor, Pickering, Holt &Co. Vincent Andrews - Morgan Stanley.

Good morning, ladies and gentlemen, and welcome to the Trinseo Third Quarter 2017 Financial Results Conference Call. We welcome the Trinseo management team, Chris Pappas, President and CEO; Barry Niziolek, Executive Vice President and CFO; and David Stasse, Vice President of Treasury and Corporate Finance.

Today’s conference call will include brief remarks by the management team, followed by a question-and-answer session. The company distributed more detailed remarks on its financial results, along with a press release and presentation slides at the close of market yesterday.

These documents are posted on the company’s Investor Relations website and by means of a Form 8-K filing with the Securities and Exchange Commission. [Operator Instructions]. I will now hand the call over to David Stasse. Please go ahead..

Thank you, Michelle, 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, factors set forth in our Annual Report on Form 10-K under the Item 1A, Risk Factors. Today’s presentation includes certain non-GAAP measurements. Reconciliation of these measurements is provided in our earnings release and in the appendix of the investor presentation.

A replay of the conference call and transcript will be archived on the company’s Investor Relations website shortly following the conference call. A replay will be available until November 3, 2018. Now I’d like to turn the call over to Chris Pappas..

Thanks and welcome to Trinseo’s third quarter 2017 financial results conference call. I would like to highlight a few key points on our financial results and strategic initiatives. First, we continue to see strong business fundamentals across our portfolio.

Third quarter net income was $33 million, which included a $66 million pre-tax charge related to our debt financing. Adjusted EBITDA for the quarter was $166 million, which exceeded the guidance of $110 million to $120 million from our second quarter call.

Our improved operating performance was due primarily to higher styrene margin from unplanned supply outages, as well as improved margin in our Basic Plastics and Latex Binders segments. This result included a $25 million unfavorable pre-tax net timing impact.

Second, in September, we closed the refinancing of our balance sheet that will reduce our annual cash interest by $25 million per year. Third, at our Investor Day in November 2016, we laid out a series of actions that we said would increase the EBITDA from our Performance Materials segments by $75 million.

These actions, along with an EBITDA contribution of $25 million from actions that were not yet identified at that time, with increased EBITDA from 2016 to 2019 by a total of $100 million. I’m pleased to report that one year later, we are making significant progress towards this goal. Let me provide an update on some of these actions.

In the third quarter, we closed on the acquisition of API Plastics and are working to integrate the business. In particular, we are already identifying and executing on complementary technology opportunities, where we can offer products to differentiate Trinseo’s offerings to the automotive and consumer essentials markets.

Also, we recently completed the construction of our new ABS plant in China, an 18-month project that was completed on time and injury free. We expect to begin selling ABS from this plant in the fourth quarter of this year. Also in the fourth quarter, Trinseo will open our new SSBR pilot plant in Germany.

This pilot plant will allow for more efficient use of our production facilities and help speed up innovation in the performance tire market from lab sample to commercialization. The pilot plant will also deliver sufficient quantities of new SSBR formulations required for real life tire testing.

Fourth, we expect higher full-year operating results in comparison to the outlook we provided on our second quarter call. We expect net income of between $280 million and $288 million and adjusted EBITDA of between $605 million and $615 million. For earnings per share, we expect diluted EPS of $6.23 to $6.41 and adjusted EPS of $7.53 to $7.71.

Our outlook assumes $25 million of unfavorable net timing impact on a pre-tax basis, including minimal impact in the fourth quarter. This higher expected operating performance is driven by the strong third quarter discussed earlier, as well as additional improvement in the fourth quarter from stronger market conditions in Basic Plastics.

And lastly, looking into 2018, we expect net income of between $343 million to $367 million, adjusted EBITDA of between $620 million and $650 million and diluted earnings per share of $7.66 to $8.20.

This outlook assumes no material impact from unplanned styrene outages and includes about 35% of the $100 million of Performance Materials EBITDA growth target that was described earlier. And now, Michelle, you may open the phone line for questions..

Okay. [Operator Instructions]. Your first question comes from David Begleiter. Your line is open..

Thank you. Good morning.

Chris, looking at the 2018 guidance, what’s your expectations for styrene market in next year and how would that trend progresses out through the course of the year?.

Yes. Hi, David. Yes, thanks. Thank you, David. We’ve been saying, as all of you know for some time now, that the styrene market and the styrenics market in general are trending positively in the sense that the supply/demand dynamic continues to move generally favorably, and we would see that continuing into 2018 for styrene.

So there is limited supply, only really a couple of small plants in interior of China coming on over the next couple years. Demand forecast continues to be in the 2% to 2.1% per year growth. And on that basis, David, we would see generally improving conditions. So that’s really the baseline view, if you will, of styrene for us.

Now, of course, we have had a series of unplanned outages in this business and we do not forecast those, as you know, and we do not include any of that in our guidance. We do, however, have at least somewhat of a view of the planned outages next year. And they would appear to be, perhaps slightly higher than 2017.

I’m talking about the industry now, unplanned outages. So I think, if you add all that up, we are generally constructive year-over-year as we have been continuously now for the last several years..

Very good, Chris. And just on the 100 million – on the incremental EBITDA on the Performance Materials growth projects, I think a $25 million incremental, is that all from the SSBR pilot plant expansion and will the balance of that $65 million be in 2019? Thank you..

Yes. Well, for next year, we are going to see some of the expansion from rubber kicking in, but it will be about $10 million. We’ll have additional growth of our Performance Materials business next year from other items, latex binders and we will have, of course, the contribution from API. So, yes, rubber is part of that.

But the major growth from rubber from the expansion will occur later in 2018 and into the 2019, David..

Thank you very much..

The next question comes from Bob Koort. Your line is open..

Hi, this is Dylan Campbell on for Bob. Quick question.

Can you help us understand how you got to that $30 million impact from unplanned styrene outages during the quarter? Does that essentially just include some margins during the time of the unplanned outages, or does they include kind of a time post outages, where the industry probably would rebuild inventories during that period?.

Well, it’s clearly an estimate. We’ve been through this kind of exercise before where we tried to quantify the effective unplanned outages. And generally, it’s the combination of all of that. So I would not want you to think there is obviously a lot of precision in that number. It’s a number that we put our best efforts into calculate.

And we try to make a judgment and an assessment, if the outages did not occur, the unplanned outages, how would the margins have been going forward? And we do a calculation on that, including building and rebuilding an inventory and we come up with that number. So I think, you should take it as it’s stated, as an estimate of the effect.

It’s clearly not possible to precisely calculate the effect of unplanned outages. But we think it’s important that you have a sense of that, because it’s an unplanned event. And that’s the reason, we disclose that calculation to you..

Okay. Thank you. And during the first-half of the year, we saw some additional unplanned outages, does that kind of imply in your guidance that those kind of a normal rate per se of unplanned outages during the first-half of the year, and I think that….

Yes again, I think – yes again, we’ve tried in the past and will in the future to characterize and give you a financial monetization of significant events in the styrene industry. Obviously, the hurricane was a significant event. There are always going to be smaller events during the year.

And anything that happened really in the first-half of the year in our view would be characterized that way and just not a substantial effect on the numbers..

Okay. Thank you..

The next question comes from Frank Mitsch. Your line is open..

Hey, good morning, guys. Hey, Chris, coming back to the 2018 guidance, I believe – well, if you go back to 2014, that’s when Performance Materials, I think, was ahead of Basic Plastics, but that was the last time, I think.

Are you looking at 2018 Performance Materials being greater than Basic Plastics? How should we think about the interplay between the two major segments?.

I think, compositionally, that’s correct for 2018. If you take the $35 million that we’ve kind of forecast of the $100 million, and if you look at the puts and takes, Frank, and we’ll talk a lot more about this in February on our call, you would expect Performance Materials to be a little bit higher next year than Basic Plastics.

So in the construct of the guidance, yes, they’re still pretty close, but Performance Materials would be in aggregate a little bit higher than Basic Plastics next year..

All right, great And obviously, that doesn’t take into account potential outages in the industry, which almost we can start forecasting, because it seems to happen on a very regular basis. And then, looking at your slide on European and styrene margin trends, December is forecast to be flat with November in both Europe and Asia.

Is that just a placeholder estimate, or what are some of the assumptions behind December holding flat with November?.

I think, it’s more than a placeholder. We are sitting here – on November 3, we have a decent view of the world. But we basically think it’s going to be similar, and rather than try and call a difference, Frank, of 10 or 15 either way, I think, in fairness, we would just call it similar and put the same grey bar in.

It’s not meant to be precise obviously, but I think the takeaway as we think the margins will be pretty similar to November..

All right, terrific. Thank you so much..

Yes..

The next question comes from Hassan Ahmed. Your line is open..

Good morning, Chris..

Hey, Hassan..

Chris, question around inventories, sort of generally where are inventories? How do you see them sort of globally? And more specifically, I mean, if I sort of sit there and think about how the year has progressed, obviously it seems that there was a sort of major restocking, call it, in Q1 in China, followed by a major destocking thereafter.

So, just any help with regards to where you see global inventories and more specifically Chinese inventories as well for styrene?.

I’m sorry, you said at the end for styrene, right, Hassan?.

For styrene, correct. Yes..

Yes. For styrene, yes. I think you are exactly right. There was a bill. There was a depletion. There was actually a little bit of a lift in the third quarter in China. But as we end the quarter, they are back down then we are talking just styrene now, and they are running about 40% of what we would call normal inventory.

At the moment, they had been at that level a little lower they came up, but the fact is the best data we have. Today, they are about 40% and normal as we head into Q4..

Understood. That’s helpful. Now….

So, they’re still pretty low. The answer is it’s pretty low..

Yes, got it.

Now moving on to the supply side of things, as I sort of take a look at what some of the sort of industry reps have been talking about, there was supposed to be incremental capacity for styrene coming in Brazil, and then you had one facility – one styrene monomer line coming online in China, then one sort of smaller expansion in China as well.

So have those facilities come online? Have they been digested quite well by the market? What’s the status on those?.

The facility in China that was supposed to come up later this year we believe has been pushed. We kind of have pretty good data on that. And that was pushed primarily due to continued regulatory discussions, if you will. As far as Brazil goes, we believe that capacity is, in fact, up. And we think, maybe some smaller capacity in Korea.

But it’s hard to tell precisely, but our net answer is, we would say that, they’re – if they are not up, they’re going to be. Maybe Brazil has shifted into 2019, maybe it’s coming up in the fourth quarter, but it’s probably going to make in early 2019 the latest. And I should have added, Hassan, on your question about inventories.

I think it’s important to note that the inventories in China, the way we stated them as we head into the generally high turnaround season in Q1. So I think that’s a positive construct as we look into at least the first part of next year..

Understood. Very helpful, Chris. Thanks so much..

The next question comes from Laurence Alexander. Your line is open..

Yes. Hi, this is Nick [indiscernible] on for Laurence.

How are you?.

Good.

How are you doing?.

Good.

So can you give an update on the three to five-year pipeline of growth products and your more differentiated downstream businesses?.

Sure. I think, we gave a quite detailed version of that at the Investor Day just about a year ago. And then I gave kind of a high-level overview of our progress.

But the main projects that are driving the $75 million of identified growth in Performance Materials include the SSBR expansion that’s coming up in January of 2019, the ABS expansion in China that is up and running and we’re going to start selling commercially out of that in the fourth quarter, a series of investments we’re making in Performance Plastics, our pilot plant for SSBR rubber that I described is coming up in the fourth quarter, it allows us to free up some capacity in the main plants in SSBR and we also made some Latex footprint changes.

Now at Investor Day, we said that we had $75 million identified in the pipeline investments we are making for Performance Materials growth, those are the ones I described. We also said that we would be working towards an additional $25 million of to be identified EBITDA growth projects for Performance Materials.

And of course, one of those is the acquisition of the API business in Italy, where we’re buying a very, very good set of TPE technologies that we can take globally across our Performance Plastics footprint to our customers and add it to our own offering in a way that we think we can create growth.

So some of that $25 million we have already committed to deliver by way of an acquisition. And I think, that’s probably about as composite as we can be on the landscape of that, Nick..

Great. Thank you very much..

[Operator Instructions]. The next question comes from Matthew Blair. Your line is open..

Hey, good morning, Chris..

Hi, how are you doing?.

Good, thanks. I had a question on capital allocation in 2018. So your guidance on EBITDA is moving up, your guidance on CapEx is falling. So free cash flow, it seems could be pretty strong next year, balance sheet is already in great shape.

Any targets on share repurchases next year? And I guess, any sort of general thoughts on the M&A landscape? Thanks..

Hey Matt, it’s Barry. I mean, I think, maybe is going to take a step back as we look at over the past two years, we repurchased about 280 million of shares. We initiated a dividend, our first ever in June of 2016, we increased that by 20% in 2017. And what we’ve said is that, we would balance growth investment with return of cash to shareholders.

So as we move forward, you think about this quarter even and we used $80 million of cash for acquisitions, about a $130 million for debt refinancing. So our share repurchase was a bit lighter. But as the future unfolds, we’ll continue to balance growth investment with returning cash to shareholders as we move into 2018..

Okay, thanks. And then, I was hoping you could comment on these potential anti-dumping duties in China for styrene. Some of the numbers have been turn around anywhere from 2% to a 50% tariff, U.S. is a net exporter of styrene, U.S. is one of the countries on the list.

So how do you view this is impacting the overall market? How is it going to change styrene pricing? Is it going to have any impact on your AmSty JV? Any comments there would be helpful, thanks..

Yes, I think, it’s early to tell, this is Chris. We haven’t obviously landed on anything. But for sure, especially this is a relatively large number, it will start to shift trade flows around. But the fundamental supply demand dynamics are still what they are.

There is a certain amount of styrene capacity that’s out there and it can run at certain rates, including the interior plants in China. And so there may be an economic effect in shifting the trade flows.

But until we see the numbers and really start to see it in action, our view would be that it should not have a large impact on the view we gave on styrene earlier. We might find out that the styrene assets in Europe run a little bit harder in that construct, depending on trade flows, for example.

So I think, let’s wait to see the numbers, and then see how the market kind of deals with it in terms of trade flows and other dynamics..

Great. Thank you..

And our final question for Q&A portion of today’s program comes from Vincent Andrews. Your line is open..

Thanks. I just was wondering if you get a little bit more detail on the working capital – I’m sorry, the free cash flow and working capital trends. It looks like you’re starting to get the butadiene release as those prices come down.

Do you think you are going to true that up by the end of the year, or will more of that flow through into 2018?.

Vincent, hi, it’s Chris. I’ll turn this over to Barry in a minute. But you are right, we did see some of that in Q3. And the very short answer is, I don’t think, we can get it all back in Q4, there are some other dynamics in Q4. And I’ll let Barry comment on that. But butadiene actually came down again now. So, it had gone back up, it’s come back down.

So it’s pretty dynamic.

But Barry, anymore detail on the way you see the working capital flows?.

Yes, maybe just pick it up little to our overall free cash flow. Year-to-date, it’s about $85 million of free cash flow. So it’s about $240 million now, that would mean about $150 million in the fourth quarter.

And seasonally, that’s our strongest quarter, particularly as we recover receivables as shipments start to slow and our receivable balance shrinks. But at that $240 million year-end free cash flow, we would still see a net outflow in working capital of about $50 million, Vincent. That’s the current sense of it, but again these move around a lot.

So – but – so that you know that free cash flow forecast would still have a working capital build, if you will, from the beginning of the year to the end of the year..

Right. So that you could theoretically if all things equal recover in 2018 on top of your normal generation. Okay, my only other question was, you mentioned a little bit of destocking of synthetic rubber, it seems like it’s come back, so maybe not an issue.

But just any sense on what went on there?.

I think it was price behavior-driven. People had – were anticipating a drop in price of rubber. They bought quite heavily in first-half of the year. Our sales in the first-half of the year for rubber were 15% higher this year than last year. So clearly, there was a reasonable amount of buying going on, I would call that ahead of general demand growth.

And then as they started to see the prospect of rapidly dropping butadiene, they retrenched. I think, that’s the basic dynamic. And as you mentioned, it’s already coming back to ‘normal’ levels as we enter the fourth quarter..

Okay, great. Thanks very much..

Hey, you’re welcome..

I have no questions in queue. I turn the call back over to the presenters for closing remarks..

Okay. Thank you, Michelle. Thanks, everybody..

Thank you, everyone. This will conclude today’s conference call. You may now disconnect..