Financial Data and Key Metrics Changes - In Q3 2025, adjusted EBITDA was $190 million, an 8% sequential improvement, excluding a $32 million pre-tax benefit from the Clean Hydrogen Production tax credit [14][15][16] - The company experienced an increase in net debt due to unforeseen payment delays from the U.S. government, but expects working capital to be a source of at least $100 million of cash for 2025 [16][17] Business Line Data and Key Metrics Changes - The core alkaline products and vinyls business showed strong performance, driven by lower operating costs and higher ethylene dichloride volumes, while the epoxy business faced significant headwinds from subsidized imports [5][14] - Winchester's commercial ammunition business was negatively impacted by high retail inventories, leading to a 5-10% decrease in sales, while military demand remained strong [10][11][15] Market Data and Key Metrics Changes - Global epoxy resin demand remains weak, particularly in Europe, while U.S. demand has been more resilient [8][9] - The caustic soda market has shown stability, with demand holding up well in key end markets like alumina and water treatment [7][8] Company Strategy and Development Direction - The company is focused on a value-first commercial strategy, maximizing cash generation, and reducing working capital [6][18] - The dissolution of the Blue Water Alliance joint venture is aimed at simplifying operations and enhancing control over the EDC market [7][42] - The company is shifting towards a make-to-order model in Winchester to reduce working capital and align production with demand [11] Management's Comments on Operating Environment and Future Outlook - Management expressed cautious optimism for the epoxy business in 2026, citing cost reductions and potential market improvements [50][79] - The company anticipates stable ECU values in the fourth quarter despite seasonally lower demand [18][67] - Management highlighted the need for a recovery in the housing market to drive demand for chemicals, particularly in North America [62] Other Important Information - The company expects an annual adjusted EBITDA benefit of $15 million to $20 million from the Clean Hydrogen Production tax credit for the years 2026 through 2028 [15][87] - The company plans to take a $40 million EBITDA penalty in Q4 to reduce inventories and support its commercial strategy [20][31] Q&A Session Summary Question: Guidance for 2026 and potential EBITDA increments - Management indicated a focus on cost reductions and the Dow contract, expecting a $70 to $90 million run rate improvement into 2026 [24][25] Question: Section 45V credit details - The $32 million benefit was a catch-up, with ongoing benefits expected to be $15 to $20 million annually from 2026 to 2028 [27][87] Question: Working capital situation in Q3 - Increased working capital was attributed to delayed payments from the U.S. government and inventory buildup in anticipation of stronger demand [30][33] Question: Impact of inventory penalties - The $40 million penalty is primarily related to Winchester, with expectations of a return to normal operating rates in Q1 2026 [35][39] Question: Update on supply agreements - The company is working on more structural term agreements for ECU, moving away from spot market reliance [41][42] Question: Update on Radnor Propellants contract - The bidding process is slow due to government shutdowns, with no immediate decisions expected [44] Question: Epoxy business outlook - Management expressed optimism for improvements in the epoxy business due to cost reductions and market rationalization [50][79] Question: Caustic soda market expectations - Higher caustic values are anticipated in Q4 due to seasonal supply restrictions [67][68] Question: Turnaround costs for VCM - Turnaround costs are expected to increase, with a detailed outlook to be provided in the next earnings call [70][72] Question: Capital allocation priorities - The company plans to prioritize debt reduction and maintain a disciplined approach to share repurchases [75] Question: Revenue mix between commercial and defense in Winchester - The military segment is expected to grow, with a current mix of 62% military and 38% commercial [56][59]

Financial Data and Key Metrics Changes - In Q3 2025, adjusted EBITDA was $190 million, an 8% sequential improvement, excluding a $32 million pre-tax benefit from the Clean Hydrogen Production tax credit [14][15][16] - The company experienced an increase in net debt due to unforeseen payment delays from the U.S. government, but expects working capital to be a source of at least $100 million of cash in 2025 [16][17] Business Line Data and Key Metrics Changes - The core alkaline products and vinyls business showed improved results driven by lower operating costs and higher ethylene dichloride volumes, while maintaining stable ECU values [7][14] - The epoxy business faced significant headwinds from subsidized imports, but formulated solutions volume improved sequentially [9][14] - Winchester's commercial ammunition business was negatively impacted by high retail inventories, leading to a 5%-10% decrease in sales, while military demand remained strong [10][11][15] Market Data and Key Metrics Changes - Global caustic soda demand remained stable, with good performance in markets such as alumina and water treatment, offsetting some weakness in pulp and paper [7][8] - The epoxy resin market continued to face challenges, particularly in Europe, due to subsidized imports from Asia [9] - The military ammunition market showed growth as NATO countries increased defense budgets, contrasting with the weak commercial market [11][56] Company Strategy and Development Direction - The company is focused on a value-first commercial strategy, maximizing cash generation, and disciplined capital allocation while preparing for a demand recovery [6][18] - The dissolution of the Blue Water Alliance joint venture aims to simplify operations and enhance strategic management in the EDC market [8][41] - The "Beyond 250" initiative focuses on right-sizing production assets, streamlining operations, and improving efficiency [19][20] Management's Comments on Operating Environment and Future Outlook - Management expressed cautious optimism for the epoxy business in 2026, citing cost reductions and potential market improvements [50][78] - The company anticipates stable ECU values in the fourth quarter despite seasonally lower demand, and expects to see improvements in the epoxy business as new agreements take effect [18][19] - Management highlighted the need for a recovery in the housing market to drive demand for chemicals, particularly in North America [61] Other Important Information - The company secured eligibility for Section 45V Clean Hydrogen Production tax credits, which is expected to provide an annual adjusted EBITDA benefit of $15 million-$20 million from 2026 to 2028 [13][15] - The company plans to take a $40 million EBITDA penalty in Q4 to reduce inventories and support its commercial strategy [20] Q&A Session Summary Question: What is the expected EBITDA increment for 2026? - Management indicated a focus on cost reductions and the Dow contract, expecting a $70 million-$90 million run rate improvement from 2025 to 2026 [24][25] Question: How much of the Section 45V credit is catch-up for earlier in the year? - The $32 million credit was a catch-up, with ongoing benefits expected to be $15 million-$20 million annually from 2026 to 2028 [27] Question: What caused the increase in working capital in Q3? - The increase was attributed to delayed payments from the U.S. government and higher inventory levels due to earlier demand expectations [30][32] Question: How confident is the company about the $40 million EBITDA penalty? - Management noted that the penalty is primarily related to Winchester's high retail inventories and emphasized the need to reduce inventory levels [34][36] Question: What is the status of the Radnor Propellants contract bidding process? - The bidding process is slow due to government shutdowns, with no decisions expected until late next year [43][45] Question: How is the company adjusting its production towards international defense markets? - The company is intentionally growing its defense business due to increased NATO spending and sees this as a strategic opportunity [54][56] Question: What is the outlook for the U.S. caustic soda market? - Management expects higher caustic values in Q4 due to stable demand in alumina and seasonal supply reductions [66][67]