Frank Bozich, President and CEO; and David Stasse, Executive Vice President and CFO and Andy Myers, Director of 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 its presentation slides at 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 Andy Myers..

Thank you, Vinnie, and good morning, everyone. [Operator Instructions] 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 in 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 our 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.

The replay will be available until November 4, 2020. Now I would like to turn the call over to Frank Bozich..

Thanks, Andy, and welcome to Trinseo's Third Quarter 2019 Financial Results Conference Call. I'd like to start by discussing some high-priority initiatives. First, in an effort to increase organizational focus and efficiency, we announced changes to our executive leadership team at the beginning of October.

The new organizational design, which is built on a global functional structure will enable Trinseo to increase organizational effectiveness through business process optimization. This organizational shift is aligned with our business excellence program and the pillars that support it, which will enable greater efficiency across the Company.

These pillars are commercial, operational, supply chain and functional excellence. This structure will have several benefits to Trinseo. First it will enable greater commercial focus on our faster growth applications. For example, adhesives and construction and latex binders and consumer electronics and performance plastics.

We had double-digit year-over-year volume growth in each of these in the third quarter. Second the transition to this new structure and the results of efficiency gains will be a major contributor to the $20 million to $30 million of annual cost savings that we have identified.

In addition to lower costs, this new leadership structure will serve us well to effectively implement the many initiatives and projects that are currently underway.

For example, our project to transition administrative services such as IT, purchasing and supply chain from The Dow Chemical Company is on track and is scheduled for completion in the first quarter of next year.

This important step to bring these functions fully in house, including the control of our IT capabilities and systems will enable greater control of our processes and be a critical enabler for future business process optimization.

Some examples of areas where we will realize ongoing benefits are in purchasing through our vendor consolidation and increased purchasing leverage in supply chain through optimization of our logistics providers and in operations through a more effective scheduling of our assets.

Another project that we previously discussed is the strategic evaluation of options for our polycarbonate facility in Stade Germany.

Our primary goal of this evaluation was to ensure that we have a reliable and cost effective supply of high quality polycarbonate for our higher margin compounding businesses, which consumes approximately 40% of our polycarbonate production.

We explored numerous options to achieve this goal and concluded that the best option is to remain in operation at this site and to exploit the significant structural and raw material cost savings that our team has identified.

These savings will be a significant contributor to the $20 million to $30 million of savings that we have identified and will result in a more sustainable economic future for the facility. This will also better support our growing sales to the higher margin medical and consumer electronics applications.

Now I'd like to talk about our recent participation in the case show in Germany, the largest global fair for plastics and rubber industry, which takes place every three years.

During the case show our team at Trinseo had the opportunity to address several projects that respond to our customer's demand for sustainable and recycled products that will contribute to putting an end to plastics waste.

As we mentioned on the last quarter’s call, Trinseo along with several other materials companies has formed Styrenics Circular Solutions or SCS. This consortium is focused on creating infinitely recyclable plastics in highly efficient and sustainable facilities.

What makes this initiative exciting is that polystyrene has a unique potential for closed-loop recycling, with two fewer steps than recycling other polymers. At the K Show, we outlined Trinseo’s plan to change your product offering to be comprised of 30% recycled content to our customers for polystyrene packaging in Europe by 2025.

We also outlined the SCS collaboration, we will build a first of its kind chemical recycling plant for polystyrene in Europe to contribute to our 2025 goal. Our target is to make the facility capable of processing up to 50 tons per day of post-consumer polystyrene feedstock.

This will make a significant contribution toward achieving the European Commission’s targets for recycling rates. Lastly, Trinseo was working to incorporate post-consumer recycled content in our products for consumer electronics and medical and therefore, keeping materials in the value chain for longer periods of time.

In addition, Trinseo was proud to be part of two key sustainability initiatives. The first is Circular Plastics Alliance, which is pledged undertaken across the plastics value chain to use 10 million tons of recycled plastic in its new products by 2025.

And the second is Operation Clean Sweep, where Trinseo just renewed its pledge to drive towards zero pellet loss as part of our commitment to keep plastic pellets out of the environment.

What was clear to me from the various discussions we had with our customers and our business partners at the K Show is that there was a great opportunity for Trinseo to solve some of our customer's sustainability challenges.

Also, it is clear that Trinseo was providing needed leadership in the areas of depolymerization and chemical recycling of plastic waste. Before I provide my third quarter comments, let me give you a brief update on the Request for Information we received from the European Commission relating to styrene monomer commercial activity in Europe.

Recall that we received this request in the form of a letter from the European Commission in June of 2018. Last week, we received a supplemental request for information that was limited to historical employment, entity, and organizational structures and certain financial, styrene purchasing, and styrene market information.

We're in the process of responding to the supplemental request and we continue to fully cooperate with European Commission on this matter. Now I want to take a few minutes to review the financials from the third quarter and what we observed across our markets.

During the third quarter, we saw a continuation of the macroeconomic conditions we have seen over the prior four quarters. This lower demand environment in combination with a low level of styrene outages cause styrene margins to decline in Q3 in comparison to those from the first half of the year.

In fact, this year is on track to have the lowest level of styrene outages since we began tracking them back in 2012. And we've been a disproportionate share of these outages in 2019. Therefore, we have updated our full year guidance to reflect this. Despite these economic uncertainties, there have been some bright spots.

Styrene margins in Europe have increased three consecutive months from the year-to-date low point in August, with November margin over raw materials increasing to its highest levels since May.

In China, the Caixin, China manufacturing PMI in October was 51.7, which is the highest reading in over two and a half years and represents the fourth straight month with an increase. Specific to the markets we serve in China, we are encouraged to see the implementation of an additional Chinese auto stimulus.

Two of the most populated cities in China decided to raise license plate quotas from June 19 until December 2020. This has led to a substantial increase in new license plate registrations in these cities during the third quarter. And we're hopeful that government initiatives like this will stimulate sales growth in the automotive market.

Appliance production in China, which is a large market for our polystyrene and ABS, saw production growth of both refrigerators and air conditioners in the third quarter versus prior year. In the U.S. light truck sales were the highest in the third quarter of any quarter this year and we're 5% above prior year. 70% of our automotive volumes in the U.S.

are into this market segment. Since I became CEO in March, I've spoken about the importance of business excellence as a key to success. And I outlined some of the anticipated benefits. We expect to get in the future, but it won't stop there.

These ongoing initiatives are even more vital during challenging economic times like these and we are confident in our ability to drive positive results as we move forward. We've seen business excellence success in polystyrene as it generated strong results in the third quarter, a period that's been seasonably – seasonally weaker than in prior years.

We've also seen year-to-date adjusted EBITDA in polystyrene that is 75% above prior year. These results were due in large part to the business excellence initiatives put in place with an emphasis on strategic pricing and customer mix.

We've seen good year-over-year growth in several of our higher margins downstream markets, adhesives, construction, and consumer electronics. In addition, year-to-date fixed cost spending, excluding onetime items across the company, was below prior year as productivity initiatives and more than offset inflation.

While we recognized that the rate of economic recovery is largely outside of our control, we acknowledged the responsibility we have in providing value to our shareholders. Part of that value is through projects and initiatives I mentioned earlier as well as through the continued return of cash to our shareholders.

In late August, we were authorized by our Board to repurchase up 3.3 million shares of our stock. In the third quarter, we purchased approximately 1.1 million shares, which combined with our quarterly dividend, returned $56 million to our shareholders during the quarter.

Year-to-date, we've repurchased about 6% of our outstanding shares and returned almost $150 million to our shareholders through share repurchases and dividends. Moving to the full year expectations, while we're seeing signs of market improvements so far in the fourth quarter, we’re experiencing similar operating conditions to the third quarter.

In addition, given the declining raw material environments, we expect an unfavorable net timing impact of about $5 million in the fourth quarter and similar quarter-over-quarter results excluding net timing. For the full year, we expect net income of $105 million to $112 million and adjusted EBITDA of $365 million to $375 million.

This outlook assumes a minimal impact from net timing for the full year. 2019 has been a year of strong cash generation and we expect to finish the year with around $320 million of cash from operations, which we expect to result in $200 million of free cash flow.

Looking ahead to 2020, we plan on providing more detail on our fourth quarter call in February. However, regardless of the economic backdrop that develops for 2020, we’re determined to improve our business results via business excellence, as well as the successful execution of our growth initiatives.

Through the efforts I’ve highlighted on this call, I believe we will be better positioned to adapt to whatever economic environment we experience in the future. This will enable us to continue to generate cash and deliver value to our shareholders. Now, operator, please open the phone line for questions..

[Operator Instructions] Your first question today comes from the line of David Begleiter of Deutsche Bank. Your line is open..

Hey, good morning..

Good morning, David..

Frank, given the recent strengths in styrene margins, what are your expectations for 2020? I know there’s some more capacity coming on in China. You’ve seen a good rebound here in the last, I think you said three months, in styrene..

Right. So we see that in 2020 there's going to be new capacity coming on in China in the first half of the year that will equal about 20,000 metric tons and an increase of 6%. That represents about 6% of global capacity. Now against that, we see demand growth growing at about 2%.

Now, the one thing I would point out though, I think overall we can expect operating – the effective operating rates in 2020 to be basically the same or better than they were in 2019. And the reason I say that is 2019 was historically low in terms of the outage level that we experienced with less than 7% of the industry capacity in outage.

So that was the lowest level that we've seen since 2012. And normally it's been 10% to 12% since 2015. So there's a real potential for the effective operating rates to improve in 2020 despite the new capacity coming into the market, what it really hinges on is a return of the normal operating or outage rates.

And what happens also to the non-integrated producers in China in the phase of lower cost, bigger or effective capacity coming online. So, our outlook is that growth plus the return to the normal operating rates is basically coming equal to new capacity. And then the upside for us is what happens to the nonintegrated producers..

Very good. And just lastly on rubber, Frank. The business has not performed vis-à-vis expectations.

What do you think is the more normalized earnings power of this segment over the next few years?.

So, we like the opportunities that we have in rubber, especially because we’re targeting through our product line high-performance tires, which is where our SSBR technology goes. Let me give you a little bit of a background on the performance this year and what’s driving that.

While our underlying performance in Q3 was about $12 million of EBITDA and the $7 million that we’ve shown was understated because we had $5 million of bill draw impact and also $2 million of timing impact. Now, overall year-to-date, we’ve actually held our SSBR margins relatively stable to prior year or last to prior year.

But in Q3, we actually saw a 3% increase in our SSBR volume. So when you look at the future for our business, it’s all driven by growth in high performance tires and how we qualify our new generations of SSBR technology.

What we had to drag from is basically ESBR, which is more of a commoditized or a standard tire rubber that is in lower depressed economic conditions, standard tires, replacement tires don’t grow as fast or they don’t have sustainability like high-performance tires.

So again, I think in this environment, our results were driven by the decline in standard tires, but our outlook is pretty. We like where we are given our position in high-performance tires with SSBR..

Thank you..

Your next question comes from the line of Frank Mitsch of Fermium Research. Your line is open..

Thank you and good morning. Frank, you mentioned that 2019, we’re seeing a lower level of styrene monomer outages then it’s typically the case. If you might be able to put some metrics around that in terms of percent out this year relative to other years? And what you would anticipate would be kind of a normal level of styrene outages..

So this year we had less than – the industry experienced less than 7% of capacity in outage both planned and unplanned. But the unplanned rate was particularly low. And typically we would have seen, for example, double digit total industry capacity outages.

And I’m looking at the numbers now, going back to 2015, they were just under 13% industry capacity in outage. In 2016, it was just under 11% of the industry capacity in outage. So, on average over the past half decade, it’s been above 10%. So, this year was an anomaly and it was the lowest year since 2012..

Very helpful. Thank you. I mean, obviously it’s a difficult to forecast unplanned outages. But a reversion to the means suggests, some positive looking at 2020. And just to kind of follow-up, you mentioned the share purchase reauthorization. You obviously ticked up the level of buybacks in the third quarter from the second quarter.

What kind of level would you anticipate – you’re buying back kind of on a quarterly or annual basis for Q1 and beyond?.

Yes. Frank, we really couldn’t forecast a precise number. Let me go back to authorization that we put in place back in August. Basically with our share prices at the time was approximately $30. We were in the $30 range. And so the Board got together and we made a determination to put in place the program that we described.

And we had an acquisition strategy that was basically looking at various purchasing levels at different pricing. And we would do that same thing. And so I can't really predict how we would do that going forward, but we would take a balanced capital deployment approach and continue to return cash to our shareholders through that..

Got you. All right, thank you. .

Your next question comes from the line of Hassan Ahmed of Alembic Global. Your line is open..

Good morning, Frank. Frank, I wanted to get a sense of where you see inventory levels right now for styrene in particular. I mean, it seem to me that particularly out in Asia, inventory had gotten quite lean.

Is that fair? Or are you seeing sort of any pickup stick downs in inventory and where are they relative to normal levels?.

Hi, good morning, Hassan. It's Dave. I'll answer that. Inventory levels, we see now in the mid-60s so 65 kts in China and that compares to an historical average about 100 kts.

Now what that means for us, obviously, we haven't seen, as Frank mentioned, the level of outages that would lean to periods as increased margins as we see in the last couple of years. And I think that's indicative of the demand environment.

But so the low level of outages, I think what a price that means for us is that, if there were to be, as we get into the first quarter, particularly in the heavier outage season – heavier planned outage season, if there are some unplanned outages on top of that.

I think the market is poised to see an increase in margins with this leaner level of inventories. .

Perfect. Thanks for that Dave. And as a follow-up, on the polycarbonate business side, obviously, you guys have decided after identifying these cost cutting opportunities to hold on to that.

And as you guys were doing that, did you entertain a sale process? Was there any interest, any buyer interest in that? And beyond the polycarbonate business, what are your thoughts about further portfolio management, be it chuckling assets, be it potential sale of other assets?.

So let me first address the strategic review that we went through with styrene. I think it's important to remember that our focus for styrene is to provide the best long term economics for the polycarbonate supply to a downstream business, confirming business that's possible. And that's about 40% of the capacity of that asset.

So when we started that review, they were all – we considered all options to achieve that goal and to improve the long term economics.

For the site and at the end of the day, after reviewing the options and we had developed, I guess opportunities to shift to other areas, what was clear is that in the long term are best economics to support a downstream business was through the continued operation of the site, taking advantage of the significant operating and raw material savings opportunities that the team developed.

So, again, all options were on the table, but this is the best option as to keep running it. And take advantage of the opportunities to improve it..

And in terms of broader portfolio management beyond polycarbonate?.

We will always look at our assets across our portfolio and look for opportunities to improve those and/or optimize the asset – our asset portfolio and that's going to be an ongoing effort as part of our business excellence initiative. Then we will continue to do that.

And when we do enter into those reviews and most of our assets being in Europe, we will have to be in that process very transparently by communicating with our works' councils for statutory reasons. So again, we will continue to do that and we will be transparent about it..

Very helpful guys. Thank you so much..

Your next question comes from the line of Mike Leithead of Barclays. Your line is open..

Thanks. Good morning, guys. I want to first circle back on polycarbonate, I believe one of your leading European competitors in that business has taken the approach to aggressively prioritize volume over price.

So I guess, can you just talk through the market dynamics you’re seeing in that business and how, if at all, that factors into your calculus and competing in some of these polycarbonate application?.

Sure. So we’ve listened to our competitors comments regarding the market and frankly, you agree with their assessment of the capacity additions and the supply demand dynamics that are occurring in the industry.

And again, when we look at – when we think about our business, we’re thinking about, how does our asset support that high volume, higher growth applications in downstream compounding. And it’s about how do we best serve that and best position ourselves to grow in that area going forward.

And our merchants sales, I would say in this – in this area, provide an overall positive earnings contribution, but they’re not the primary goal for us and why we operate that site that give us critical mass and economies of scale for our downstream – for the internal supply.

So we see we have a sustainable position, but relatively small minor merchant position. And our focus is to operate that segue with the best economics possible. .

Got it. That’s helpful. And then just the follow-up on synthetic rubber, obviously volumes have been hit by the weaker auto demand, but maybe could you parse apart the mix effect you’re seeing in SSBR demand versus ESBR demand.

And how unit margins for this business have trended over this choppy demand environment?.

Hi, Mike, its Dave, I can address that. I think Frank outlined it pretty well. If you look at the composition of our manufacturing capacity in the synthetic rubber, it’s roughly evenly split between ESBR and SSBR. ESBR being the more commoditized which goes into standard tires.

And a lot of that frankly ends up in Asia and the standard tire market, then SSBR which is targeted towards the high performance tire market. Our volumes, as Frank mentioned, they’re up about 3% on the SSBR side – where we’re focused on growing and developing that market, but they’re down double-digits on the ESBR side.

On a percentage year-over-year basis our volumes in ESBR are down double digits. And frankly there’s been a big margin hit that side of the business also there is – if you look on a global basis, there is excess capacity in ESBR. So that’s subjective margin fluctuation and weak demand environments.

Where conversely on SSBR as you know, we have a largely contracted business with the large tire producers and we’ve held margins for several years and pretty consistently on SSBR..

Got it. Thank you. .

Your next question comes from the line of Eric Petrie of Citi. Your line is open..

Hi, good morning. Frank.

Question on your cost savings target of $20 million to $30 million, how do you see the run rate going forward? Do you see all that being captured next year and how would you split it by business segment?.

That’s a great question. On the last piece, it’s too early for us to a portion that to a business unit. I guess what maybe let me give you a context on that number.

First, I would tell you we have a much bigger pipeline of opportunities than the $20 million to $30 million, and the sources of these are efficiency gains from the transition to a global functional organization, which is more streamlines, and then there’s operating improvements that we normally have at the site and opportunities there and then also raw material savings.

So right now we’re in the process of resourcing these various initiatives and then developing the sequencing. But I would tell you the vast majority of that will be – will hit our P&L in 2020. But the exact timing and phasing of that, we won’t know for a couple more months until we resourced that and fully implement the program.

But again, it’s much bigger than that number going forward in the future. And I guess one add-on, I would give it to you is that this – the program that we have to become systems independent from Dow Chemical is a really important enabler for future process efficiency for us in the future.

And that’ll be a big sort of opportunities as we look at how we redesign our business processes in supply chain and in our – in our manufacturing operations, et cetera. So, I’m confident that we will have a continued pipeline of opportunity bigger than this. but 2020, the majority of that we should see realize hitting the P&L..

Okay, thank you. And from a follow-up, you mentioned European styrene margins improving. Could you give us comments on the Asian market, I think prices have declined to roughly $850 down from a $1000 in September. So, any comments there and how much volume you might be buying based on those economics of purchasing would be helpful..

David Stasse:.

.:.

Helpful, thank you..

Your next question comes from the line of Vincent Andrews of Morgan Stanley. Your line is open..

Hi, this is Angel Castillo on for Vincent. Thanks for taking my question. Just a quick question on your 4Q expectations. You noted a similar market, I guess as 3Q.

I’m just curious as to why you wouldn’t – I guess include a little bit more seasonality and maybe, what are the factors that make you feel comfortable with that?.

Yes. So, if I understand the question, we basically are seeing very similar operating rates and business environments in Q4 so far as what we’ve seen in Q3. The performance net of timing should be basically, the same.

Now, we are seeing optimism went upturns in the various markets that we’re serving and in our downstream markets, but it’ll take time, we believe for that to flow through the supply chain to us. And so we’ll have a better read on that as we get into later Q4 and early Q1.

Does that answer the question?.

It does. Thank you.

And then just kind of following up on that, I guess in your comments in raw materials, just curious benzene moved out quite a bit throughout the year, and I know that there’s a lag effect and obviously, you’re the net timing and backed in the fourth quarter as we head into 1Q and 2Q, just thoughts on kind of the raw material impact and what should we expect as we head into 2020 from that?.

Yes. Hi, Angel, it’s Dave. I mean, I think it’s a little too early for us to obviously, the – what happens to benzene will be largely influenced by what happens to accrued in Q1 and Q2, and as well as outages. So, I think it’s a little too early – a little too early for us to pass judgment on, where feedstock prices will be in Q1 and Q2.

One thing I do want to just point out to you though, Angel, you’re right. There were a couple of cracker outages in Europe that affected benzene caused benzene strike prices to rise probably August, September timeframe.

So that, and as we mentioned earlier, August was the trough styrene margin once first in the year and it was largely caused by that impact in Europe.

And that those outages have ended, which is largely contributed to the increase in styrene margins we’ve seen enough in the several months since then, so that was really the primary driver of the benzene price movement over the last three or four months. .

Great, thank you..

And your last question in queue today comes from the line of Bob Koort of Goldman Sachs. Your line is open..

Good morning. This is Dylan Campbell on for Bob. I noticed that polystyrene had pretty encouraging results growing EBITDA year-over-year in the third quarter. When we look at 2020, it gave a pretty interesting bridge and in terms of capacity and demand growth for styrene.

I’m just curious how much of that styrene is going into polystyrene versus I guess other styrene derivatives?.

I’m going to get you a precise answer, but yes, it’s a little hard to parse it out that way, Dylan, because as you know, we manufacturer styrene and we also purchase styrene. So, I mean it’s somewhat fungible in terms of which of that – which of the manufactured versus purchased styrene goes into polystyrene versus latex or rubber.

It is very hard for us to parse out. What I would say – and I think what I would say, which I think is important just for understanding the economics of our polystyrene business and how we account for – how we account for polystyrene – the polystyrene segment.

We transfer styrene internally from our feedstocks business regardless of whether it’s bought or sold, it’s transferred internally at market. Okay. So there’s what we’ve reported as EBITDA in our polystyrene business and the same holds for latex and rubber and the other businesses.

What we report as EBITDA in that business is the polystyrene margin over the market cost of styrene that affected their polystyrene businesses, buying styrene there. So, I want to make sure you understand that.

And to get your specific question about you’re right, the results of – the results of polystyrene had been good – the first three quarters a year we’ve been running at a $15 million or $16 million adjusted EBITDA run rate versus about a $12 million quarterly run rate for the past several years.

And the reason for that is commercial excellence activities, we’ve done a very good job on parsing out the market and segmentation and pricing activities in that market.

But I would say going into 2020, Dylan is that, there were two fairly large polystyrene plants that have been shut down – that will be shut down in Europe over the next two or three months. One of them is being converted to produce ABS and the other is being shut down. And those combined are about 7% of European capacity.

So that should – we think that will provide us with some tailwind for 2020. And again, polystyrene is larger regional product, it doesn’t ship globally. So that 7% reduction in both should be helpful going into next year. .

Got it. That’s helpful. And then I noticed in the free cash flow build, you seem kind of minimal sources and uses of working capital. I think generally, or I guess, the last two years or so in the fourth quarter, you’ve got a pretty decent use or a source of working capital in the fourth quarter.

What’s kind of driving the difference in 2019?.

Yes. I think we based that probably you’re right, Dylan, we typically have seen – we have seen a release as sales decline in December and we have released a working of receivables really there for – I would say, I guess I would attribute to just the forecasting conservative, Dylan. That was really all I would say about that..

Got it. Thank you..

And ladies and gentlemen, this does conclude today’s conference call. Thank you for participating. You may now disconnect..