Trinseo(TSE) - 2024 Q1 - Quarterly Results

First Quarter 2024 Financial & Strategic Overview This section provides a comprehensive overview of Trinseo's financial performance and key strategic initiatives during the first quarter of 2024 First Quarter 2024 Financial Highlights Trinseo reported a wider net loss of $76 million on $904 million net sales, a 9% decrease, while Adjusted EBITDA improved to $45 million due to favorable timing and better margins Q1 2024 Key Financial Metrics | Metric | Q1 2024 | Q1 2023 | | :--- | :--- | :--- | | Net Sales | $904 million | $996 million | | Net Loss | $(76) million | $(49) million | | Diluted EPS | $(2.14) | $(1.40) | | Adjusted Net Loss* | $(69) million | $(35) million | | Adjusted EPS* | $(1.94) | $(1.01) | | EBITDA* | $38 million | $29 million | | Adjusted EBITDA* | $45 million | $36 million | - Net sales decreased 9% year-over-year, with a 7% decrease attributed to lower prices and weak markets, and a 3% decrease due to lower sales volumes from the Terneuzen styrene facility closure[4] - The Q1 net loss of $76 million was $27 million worse than the prior year, while Adjusted EBITDA increased by $9 million to $45 million, driven by higher margins and a $13 million favorable net timing impact[5][3] Operational and Strategic Highlights Negative free cash flow of $82 million was driven by working capital, while liquidity remained strong, and strategic divestitures and plant closures are underway - Free Cash Flow was negative $82 million, impacted by a $61 million increase in trade working capital due to seasonality and a more than 50% increase in styrene monomer prices[3] - The company ended the quarter with $171 million in cash and approximately $252 million in additional liquidity from undrawn financing facilities, with the Accounts Receivable Securitization Facility's capacity increased by $36 million[3] - Strategic initiatives include commencing the sale process for Americas Styrenics and the potential closure of the Stade, Germany polycarbonate plant, projected to increase annual profitability by $15 million to $20 million[3] Management Commentary and Outlook This section presents management's insights on Q1 2024 performance and the company's financial and operational outlook for the second quarter Management Commentary on Q1 2024 Performance Management observed steady Q1 improvements, anticipating continued margin expansion as destocking ends and working capital reverses in Q3 - Management believes destocking has ended in some value chains, leading to significant margin expansion in Engineered Materials and Americas Styrenics in March[6] - The increase in working capital was larger than typical seasonality due to significantly higher styrene costs, expected to reverse and release working capital in Q3[6] Second Quarter 2024 Outlook Q2 2024 outlook projects significant profitability improvement driven by operational turnarounds, seasonal demand, and favorable market conditions, with improved free cash flow Q2 2024 Guidance | Metric | Q2 2024 Forecast | | :--- | :--- | | Net Loss | $53 million to $38 million | | Adjusted EBITDA | $60 million to $75 million | - Profitability is expected to improve significantly due to the completion of the Americas Styrenics turnaround and seasonal strength in building and construction applications[8] - Continued tightness in styrene and MMA markets is expected to support higher margins, with free cash flow also projected to improve sequentially[8] - Liquidity preservation remains the company's top priority despite positive earnings momentum and adequate access to liquidity[8] Segment Performance Analysis This section details the financial performance and key drivers for each of Trinseo's business segments in the first quarter of 2024 Reporting Segment Changes Effective January 1, 2024, the Feedstocks reporting segment was eliminated, with its historical results reallocated to consuming segments - As of January 1, 2024, the Feedstocks reporting segment has been eliminated, with its historical results now included within the Latex Binders, Plastics Solutions, and Polystyrene segments[7] Engineered Materials Engineered Materials' net sales declined 8% to $189 million, but Adjusted EBITDA significantly improved to $4 million due to higher MMA margins Engineered Materials Performance (Q1 2024 vs Q1 2023) | Metric | Q1 2024 | Q1 2023 | | :--- | :--- | :--- | | Net Sales | $189.2 million | $206.2 million | | Adjusted EBITDA | $4.3 million | $(11.7) million | - The $16 million year-over-year increase in Adjusted EBITDA was mainly due to higher MMA-related margins, lower natural gas hedge losses, and fixed cost under-absorption in the prior year[9] Latex Binders Latex Binders' net sales decreased 3% to $241 million, while Adjusted EBITDA slightly increased to $26 million due to modest volume and margin gains Latex Binders Performance (Q1 2024 vs Q1 2023) | Metric | Q1 2024 | Q1 2023 | | :--- | :--- | :--- | | Net Sales | $241.5 million | $249.0 million | | Adjusted EBITDA | $25.7 million | $24.0 million | - Net sales were down 3% YoY, with a 7% price decrease partially offset by a 3% volume increase in paper and board applications[9] Plastics Solutions Plastics Solutions' net sales fell 12% to $266 million due to weak markets, while Adjusted EBITDA remained stable at $23 million Plastics Solutions Performance (Q1 2024 vs Q1 2023) | Metric | Q1 2024 | Q1 2023 | | :--- | :--- | :--- | | Net Sales | $265.7 million | $300.3 million | | Adjusted EBITDA | $22.7 million | $23.6 million | - Adjusted EBITDA was stable as lower ABS margin was almost entirely offset by a favorable net timing variance caused by increasing styrene costs during the quarter[9] Polystyrene Polystyrene net sales decreased 14% to $208 million, but Adjusted EBITDA rose to $13 million due to favorable timing and lower fixed costs Polystyrene Performance (Q1 2024 vs Q1 2023) | Metric | Q1 2024 | Q1 2023 | | :--- | :--- | :--- | | Net Sales | $207.6 million | $240.8 million | | Adjusted EBITDA | $12.6 million | $8.9 million | - Adjusted EBITDA increased by $4 million YoY, as favorable net timing and lower fixed costs from the Terneuzen plant closure offset price and margin pressure[9] Americas Styrenics Americas Styrenics reported Adjusted EBITDA of $6 million, a $12 million decrease, primarily due to a planned turnaround Americas Styrenics Performance (Q1 2024 vs Q1 2023) | Metric | Q1 2024 | Q1 2023 | | :--- | :--- | :--- | | Adjusted EBITDA | $6.1 million | $17.6 million | - The $12 million year-over-year decrease in Adjusted EBITDA was caused by a planned turnaround at its largest styrene production facility[9] Condensed Consolidated Financial Statements (Unaudited) This section presents the unaudited condensed consolidated statements of operations, balance sheets, and cash flows for the specified periods Statements of Operations Q1 2024 net sales were $904 million, with gross profit increasing to $60.6 million, but a net loss of $75.5 million due to higher interest expense Q1 2024 Statement of Operations (in millions) | Line Item | Q1 2024 | Q1 2023 | | :--- | :--- | :--- | | Net sales | $904.0 | $996.3 | | Gross profit | $60.6 | $37.2 | | Operating income (loss) | $(3.3) | $(30.2) | | Interest expense, net | $63.0 | $38.3 | | Net loss | $(75.5) | $(48.9) | | Net loss per share- diluted | $(2.14) | $(1.40) | Balance Sheets Total assets were $3.0 billion, with cash decreasing to $166.4 million, while long-term debt remained stable and shareholders' equity became more negative Balance Sheet Highlights (in millions) | Account | March 31, 2024 | December 31, 2023 | | :--- | :--- | :--- | | Cash and cash equivalents | $166.4 | $259.1 | | Total assets | $2,989.4 | $3,029.2 | | Long-term debt, net | $2,276.7 | $2,277.6 | | Total liabilities | $3,337.4 | $3,297.2 | | Shareholders' equity | $(348.0) | $(268.0) | Statements of Cash Flows Cash used in operating activities was $66.2 million, leading to an $89.6 million net decrease in cash, ending at $166.4 million Cash Flow Summary (in millions) | Line Item | Three Months Ended March 31, 2024 | Three Months Ended March 31, 2023 | | :--- | :--- | :--- | | Cash provided by (used in) operating activities | $(66.2) | $45.4 | | Capital expenditures | $(15.7) | $(21.8) | | Cash used in investing activities | $(11.0) | $(21.8) | | Cash used in financing activities | $(9.2) | $(20.5) | | Net change in cash | $(89.6) | $5.4 | | Cash and cash equivalents—end of period | $166.4 | $217.1 | Notes to Financial Statements This section provides supplementary notes to the condensed consolidated financial information, including segment net sales and non-GAAP reconciliations Net Sales by Segment Net sales by segment are detailed, showing a total of $904 million in Q1 2024, a decline from $996.3 million in Q1 2023 Net Sales by Segment (in millions) | Segment | Q1 2024 | Q1 2023 | | :--- | :--- | :--- | | Engineered Materials | $189.2 | $206.2 | | Latex Binders | $241.5 | $249.0 | | Plastics Solutions | $265.7 | $300.3 | | Polystyrene | $207.6 | $240.8 | | Total Net Sales | $904.0 | $996.3 | Reconciliation of Non-GAAP Measures This note reconciles GAAP Net Loss to non-GAAP measures like EBITDA and Adjusted EBITDA, providing insights into core operational performance and Q2 2024 forecasts Reconciliation of Net Loss to EBITDA and Adjusted EBITDA (Q1 2024 vs Q1 2023) Q1 2024 Net Loss of $75.5 million reconciled to Adjusted EBITDA of $45.0 million, reflecting adjustments for interest, taxes, D&A, and restructuring charges Reconciliation of Net Loss to Adjusted EBITDA (in millions) | Line Item | Q1 2024 | Q1 2023 | | :--- | :--- | :--- | | Net loss | $(75.5) | $(48.9) | | Interest expense, net | 63.0 | 38.3 | | Provision for (benefit from) income taxes | 5.4 | (16.7) | | Depreciation and amortization | 45.0 | 56.0 | | EBITDA | $37.9 | $28.7 | | Restructuring and other charges | 9.4 | 3.7 | | Other items | (2.3) | 3.9 | | Adjusted EBITDA | $45.0 | $36.3 | Reconciliation of Forecasted Net Loss to Adjusted EBITDA (Q2 2024 Outlook) Q2 2024 forecast projects Adjusted EBITDA between $60 million and $75 million, reconciling to a Net Loss of $53 million to $38 million Q2 2024 Forecast Reconciliation (in millions) | Metric | Q2 2024 Forecast | | :--- | :--- | | Adjusted EBITDA | $60 - $75 | | Interest expense, net | ~$63 | | Provision for income taxes | ~$4 | | Depreciation and amortization | ~$46 | | Net Loss | $(53) - $(38) | Reconciliation of Free Cash Flow This section reconciles cash from operations to Free Cash Flow, showing a negative $81.9 million in Q1 2024 compared to positive $23.6 million in Q1 2023 Free Cash Flow Reconciliation (in millions) | Line Item | Three Months Ended March 31, 2024 | Three Months Ended March 31, 2023 | | :--- | :--- | :--- | | Cash provided by (used in) operating activities | $(66.2) | $45.4 | | Capital expenditures | (15.7) | (21.8) | | Free Cash Flow | $(81.9) | $23.6 |