Thanks, Kevin. Welcome to the Celanese Corporation Third Quarter 2023 Earnings Conference Call. My name is Brandon Ayache, Vice President of Investor Relations. And with me today on the call are Lori Ryerkerk, Chairman of the Board and Chief Executive Officer; and Scott Richardson, Chief Financial Officer. Celanese distributed its third quarter earnings release via Business Wire and posted prepared comments on our Investor Relations website yesterday afternoon. As a reminder, we will discuss non-GAAP financial measures today. You can find definitions of these measures as well as reconciliations to the comparable GAAP measures on our website. Today’s presentation will also include forward-looking statements. Please review the cautionary language regarding forward-looking statements, which can be found at the end of both the press release as well as the prepared comments. Form 8-K reports containing all of these materials have also been submitted to the SEC. Before opening it up for your questions, let me turn it over to Lori to provide a few introductory comments.

Thanks, Brandon. So we have done and announced a lot recently. So I just wanted to take a minute or two to emphasize again exactly what we are all working so hard to achieve at Celanese. I can confidently say that at no point in our history has there been a greater opportunity for Celanese to deliver significant earnings growth in the next few years. In the Acetyl Chain, we continue to enhance our earnings power and optionality with projects like the acetic acid expansion at Clear Lake and the methanol expansion also at Clear Lake, which will dramatically strengthen our sustainable product offerings. Of course, in Engineering Materials, we continue to integrate and synergize the M&M acquisition, which transforms EM into the preeminent global specialty materials provider. This important and valuable work has been made more challenging in a demand backdrop that remains exceptionally weak and volatile. Our visibility into future macro conditions is limited. Regardless, our teams have worked tremendously hard to deliver three consecutive quarters of earnings growth since closing the M&M acquisition and to position us to meaningfully exceed our full-year objective to reduce net debt by $1 billion in 2023. The work has not been easy, and I sincerely thank each of our employees for their individual contributions and dedication. Quite frankly, while the work is moving forward at pace, the macro environment has temporarily masked some of the underlying financial benefits of our actions to strengthen our business. But we remain resolute in continuing to take decisive and controllable actions. Our most recent actions, including the announced changes to our leadership team and manufacturing footprint, are evidence of our ongoing commitment to drive earnings growth and execute against our delevering plan. The purpose behind the changes I have made in our executive leadership team is to enhance the alignment of our individual strengths and experience to accelerate and deliver on the many value-enhancing opportunities before us. Scott, Chuck, and Ashley are exceptionally well prepared for their new roles, and I am confident these changes will immediately enhance the value we drive as a collective leadership team. I speak for our leadership team and broader Celanese in saying we are fully engaged and committed to delivering on the opportunities before us. With that, Kevin, let me turn it back over to you to open it up for questions.

Our first question is coming from Mike Leithead from Barclays. Your line is now live.

Great. And congrats to Scott, Chuck, and Ashley on the new roles. Lori, I wanted to start on Engineered Materials pricing. I think in the prepared remarks, you made a comment that pressure has widened throughout the year, but nothing indicates that it's structural. So can you maybe just talk a bit more about your confidence here or maybe what you have seen in previous down cycles versus now? Just what gives you the confidence in making that comment?

Yes. If I think about pricing, and again, I’ll split it into two. What we have really seen is pretty good price stability in differentiated products. However, we have experienced a significant volume decline due to a drop in consumer demand, particularly in consumer electronics, as people have shifted their spending to more services and experiences. The pressure we are seeing is for more standard grade materials where we have significant length in the industry due to softer demand, leading everyone to lower prices. One of the reasons we are taking certain steps is to better position our supply with the current demand scenario, including shutting down some higher-cost operating capacities and filling customer needs with lower-cost capacities we already have or even purchases if that is more economical. As demand normalizes, we should be able to support that demand from existing assets and through low-cost debottlenecks. We are in a structurally unique position with very little exports from China and a very weak environment in Europe, but I am confident demand will eventually recover. Auto is a great example; it has been solid this year, and we expect that to continue. Medical has also been solid. We are viewing this decline in consumer preference and spending as temporary, particularly compared to the highs we experienced in 2021.

And then a question for Scott, maybe on free cash flow. I think in Lori’s 2024 outlook she laid out in the prepared remarks, maybe $300 million or $400 million of earnings improvement next year; you guys are probably getting a similar type of amount of working capital benefit this year. So as we think about free cash generation next year, is relatively flat year-on-year a good starting point today or do you foresee further working capital or other cash benefits that you can capture next year?

Yes. Thanks, Mike. We are going to work to ensure that as we see earnings growth, we put that as much to the bottom line of free cash flow as possible. We called out CapEx being $100 million lighter next year. The variable will be working capital and will depend on raw material pricing as well as sales and accounts receivable line. We will do everything possible to continue to bring down inventory next year. There could be opportunities for further reductions depending on demand and raw material prices.

Next question is coming from Jeff Zekauskas from JPMorgan. Your line is now live.

I think Eastman’s filter tow profits are up around $225 million through the nine months. There was no mention of filter tow in your remarks. How is that business doing, and how is it affecting the acetal chain earnings?

Jeff, as you know, we are running that as an end-to-end chain now. We are treating it similarly to our other downstream derivatives. We are seeing impacts in tow similar to what we see elsewhere. In the second half, we have had a reset of contract pricing, which is bringing those margins down slightly from the first half, but that was anticipated with the contract setup. However, I would say we are still on track to exceed the $245 million sales target we set earlier this year.

You are closing your German nylon facility. Is that about 15% of your nameplate capacity in nylon? And what utilization rate are you running at in nylon generally?

Yes. The plant actually represents 25% of our total nylon capacity. I don’t have total utilization numbers handy, but I would characterize it as we are concentrating our operations by taking out underutilized or less profitable assets and shifting more volume into our lower-cost, more profitable facilities, enhancing flexibility in our networks. We have shut down over 15 facilities in the last decade as part of this ongoing optimization process.

Next question is coming from Mike Sison from Wells Fargo. Your line is now live.

You haven’t told I need to do more math these days. So if I add up the bridges you gave for 2024 and just use the lower end of the inventory stuff, it looks like with no volume growth, you could do $12 or better. Is that the right math? And then can you help us frame up volume and inflation or deflation upside for 2024?

Yes, Mike, we laid out the various buckets. You can do the math. Just to reiterate, we do expect to gain more than $150 million in additional M&M synergy. With the acceleration of our manufacturing footprint optimization, we hope we can exceed that amount. We should get another $100 million with the Clear Lake acetic acid startup. Debt service will decrease by about $50 million. Next year we will have less inventory reduction, resulting in a smaller margin impact. The big unknown is the benefit we see from flushing through higher-cost inventory, which can be significant depending on raw materials and future sales. Demand volatility remains high, hence we are focused on those major areas we can control.

Got it. And then regarding 2024, what are your initial thoughts on China, Auto, and your end markets? What demand environment could be expected next year?

Yes. Providing insight into next year is challenging; the volatility is significant. For Auto, we forecast moderate growth across all sectors of a couple of percent, which should align with our growth. Medical is expected to remain strong. In discussing with customers, I anticipate moderate growth over the year, but the timing and pace of that remains uncertain. Overall, we have less conviction on next year's outlook than we typically would due to current market volatility.

Next question today is coming from Josh Spector from UBS. Your line is now live.

I wanted to follow up on the price-cost dynamics and the impact of lower-cost inventory. Lori, you sound less certain, but could that still be a large factor if pricing holds in the fourth quarter? Is that a condition for a spread benefit into next year?

No. Even at the current pricing, we are beginning to see some pull-through of that lower-cost inventory. This will have a moderate impact on our quarter-on-quarter growth. If prices increase, it would help more, but we must also consider raw material prices, which are trending upwards this quarter. Overall, we expect some benefit from flushing through higher-cost inventory, but the scale will depend on raw materials and future pricing.

Okay. When you refer to it being the largest bridge item, is that even if pricing remains steady?

I would say that if pricing and raw materials stay constant, that statement would still hold true.

Next question is coming from Vincent Andrews from Morgan Stanley. Your line is now live.

In the third quarter, Acetyls managed to perform despite some headwinds from outages in Asia. Can you size that impact, and what do you anticipate for the fourth quarter? Are the higher pricing flows merely delayed inventory effects?

Yes, Vince. We certainly saw a positive effect from the higher Asia pricing due to supply outages in the third quarter. Most happened in the final few weeks. Those outages offset the impact of the anticipated contract pricing reductions we forecasted and the turnaround impacts we faced. Heading into the fourth quarter, we have seen that price recede closer to the cost curve, possibly slightly above it. We expect limited benefits in the Western Hemisphere compared to what we saw in the third quarter due to pricing usually lagging by about a quarter.

On the tax rate, Vincent, a lot will depend on the geographic mix of earnings. If situations remain as they have this year, we could see lower levels. If we get back to a normalized mix, then we’d see levels more in line with the typical range of around 12%.

Next question today is coming from David Begleiter from Deutsche Bank. Your line is now live.

First, congratulations to Scott, Chuck, and Ashley. Lori and Scott, regarding EM pricing—it was up about 38% in 2021 and 2022, should be down this year, maybe around 8%. If 2024 returns to pre-2021 cost levels, do we retain some of this price increase? And if so, why?

That seems like a very long time ago, Dave. The good news is we are seeing volume recoveries. In some areas, like medical and auto, we are almost back to 2019 levels, and therefore pricing and margins are also likely to reflect that. However, demand in durables, electronics remains very soft. Pricing for differentiated grades looks sustainable, but for standard grades, we’ll need additional demand to recover those pricing levels.

Given some of the structural changes we're making, we believe we should be able to hold our pricing as we return to normalized raw material prices. Additionally, as we see the Engineered Materials business and Acetyls business become equal in size, normalized demand could lead to reduced earnings volatility overall.

Regarding the Clear Lake expansion, how should we think about the ramp-up to the $100 million of normalized annualized earnings? Should we expect around half of that next year?

The Clear Lake asset expansion is expected to commence within the first quarter, and the ramp-up should begin immediately post-startup.

Next question is coming from Kevin McCarthy from Vertical Research Partners. Your line is now live.

Lori, in your prepared remarks, it mentioned that you ceased production at certain Engineered Materials facilities in Brazil, Argentina, and Germany. Beyond the nylon shutdown you discussed previously, can you clarify if these are temporary or more permanent in nature? Could you also elaborate on where you are in the asset rationalization process?

For most of those facilities named in Argentina, Brazil, and Europe, these are permanent shutdowns. We are taking temporary actions in places like VAM in Frankfurt, utilizing that capacity flexibly to meet current demand, which is lower than usual. However, the recent announcements reflect structural changes that redefine our position on the cost curve by eliminating our higher-cost producers.

That is helpful. What was the synergy-related benefit in Q3 and what do you expect in Q4? Regarding the targeted tailwind of $150 million next year, would you describe that as gradual or ramping throughout 2024?

In Q3, synergies were slightly lower than anticipated, about $30 million in total, which was an incremental 10% to 11% rise compared to Q2. We anticipate a sequential increase in synergies in Q4, but the significant synergy impacts will begin following the completion of our transition to SAP in the first quarter and after implementing recent shutdowns in January and February. Therefore, while synergies will ramp across 2024, I expect the substantial impact to start more in the second quarter and extend throughout the year.

In Q3, synergies were around $30 million in total, which was incrementally up about 10% from Q2.

Next question is coming from Hassan Ahmed from Alembic Global. Your line is now live.

You mentioned maximizing make versus buy flexibility. Is it fair to assume a lot of this optimization work will focus on the EM side? Could this also indicate potential Greenfield build-outs in the future?

We are focused on enhancing flexibility across all products, not just optimizing make versus buy but also sourcing flexibility for raw materials and regional flexibility. We're not anticipating Greenfield projects in the near future. Our strategy focuses on utilizing our existing footprint effectively to expand easily and cost-effectively, exemplified by the Clear Lake expansion, which represents a significant capability increase for a relatively low investment.

Given the historical context around destocking, how might you project what a potential restock could look like?

At some point, I believe a restocking will happen, but the timing is very uncertain. Currently, we are happy to see a return to normal order patterns in some polymers. I would anticipate moderate restocking, perhaps a few percent, spread out over time since companies will likely be cautious about rapidly increasing stock levels given the past year's disruptions.

Next question is coming from Alex Yefremov from KeyBanc Capital Markets. Your line is now live.

Regarding the M&M synergies in your 2024 bridge, does the anticipated $150 million improvement rely on volume or demand improvement?

The $150 million synergy target will depend somewhat on volume, as some synergies are volume-related. We are committed to exceeding that synergy target for the year. The mix may differ from what we set out a year ago, but we have sufficient activities planned to achieve that goal.

Have you noticed any significant idle or permanent shutdowns in the industry?

Yes, particularly in the nylon sector, we've seen significant activity. While there has been some new capacity added, we are observing our competitors taking similar actions to address overcapacity. For instance, a nylon intermediate producer recently announced a shutdown of a major asset, addressing legacy higher-cost assets as we collectively work toward market rebalancing.

Next question is coming from Frank Mitsch from Fermium Research. Your line is now live.

Can you comment on the destocking process? You mentioned that it appears to be ending in America and Asia, while continuing in Europe. What supports your confidence in this outlook?

Our confidence comes from conversations with distributors and customers, alongside current buying patterns. Particularly in the U.S., we see buyers wanting immediate fulfillment, suggesting they are fully destocked. We also observe recovery signs in sectors that were weak, such as consumer durables and electronics, returning to more normal demand patterns. However, Europe still suffers from low consumer confidence due to ongoing geopolitical tensions and economic issues.

Can you provide perspective on one-time costs from 2023 and how they may set an easier comparison for 2024? How do turnaround plays factor into your 2024 expectations?

We previously indicated $60 million to $80 million of one-time actions aimed at offsetting softness, which we have been realizing in Q3 and Q4. These actions involve idling lines and cutting costs from underperforming facilities. If demand does not recover, we can continue to capture those cost savings into 2024. Conversely, should demand increase, we are prepared to invest again to capitalize on that margin potential.

We are focusing on permanent actions that provide sustainable cost reductions, thereby lowering our overall fixed cost base for better resilience in lower demand environments, thus allowing greater leverage on fixed costs going forward.

Next question is coming from Arun Viswanathan from RBC Capital Markets. Your line is now live.

Considering the bridge for 2024, if we consider Q3 EBITDA around $625 million for Q4, do you perceive a $2.5 billion run rate heading into next year along with other incremental benefits? Also, is volume the main factor that could push you above that range?

We have outlined the factors at play. The primary unknown is demand relative to pricing volatility, especially concerning raw materials. We aim to provide better guidance next quarter.

Regarding the balance sheet, can you outline your future plans?

Our priority remains accelerating cash generation and aggressively paying down debt. We have made progress on maturities and will focus on cash repatriation to reduce net debt significantly. Next year, we anticipate reducing net debt by nearly $2 billion total and are targeting a leverage level of three times as quickly as possible.

Next question is coming from Laurence Alexander from Jefferies. Your line is now live.

Looking at improving productivity in Acetyls over the next few years, without a significant demand surge, how much capacity could be optimized? How close are we to fully upgrading processes, and when would Greenfield projects be necessary?

We have spent years optimizing our Acetyls operations, reducing facility numbers for efficiency. With our expansion at Clear Lake and various small expansions in downstream derivatives, we’ve managed to maintain or increase volumes while significantly improving margins. This mindset is being applied to the M&M portfolio, and we don’t foresee a need for new Greenfield projects in the near future as our existing capacity suffices for now.

Next question is coming from Salvador Tiano from Bank of America. Your line is now live.

Relating to the shutdowns in Engineered Materials, were these actions part of your original plans from the DuPont acquisition or in response to current market pressures, and how does this affect your synergy targets?

We believed at the time of acquisition that DuPont had sufficient capacity to meet typical demand. The current moves reflect our newfound understanding of operating efficiencies, addressing identified overcapacity now that we have had time to evaluate the performance of the plants. While some adjustments are reactionary, our ongoing strategy is fundamentally about ensuring we build the most efficient and flexible operational footprint possible.

Can you provide your Q4 outlook compared to others in the industry? What makes you believe destocking will be more muted?

We can only speak to our outlook based on our direct interactions with customers and distributors. Our position is bolstered by the fact ότι half our Engineered Materials volume goes to the automotive industry, which remains solid going into Q4. However, ultimate demand dynamics will dictate our overall growth.

Next question is coming from Andrew Keches from Barclays. Your line is now live.

Clarifying debt repayment plans, do you have your operating needs covered for 2024?

Currently, our cash balance is above $1.3 billion; we will repatriate it soon. Once the one-system integration is completed early next year, we will move towards a cash balance closer to $500 million, which we aim to achieve within 2024.

What is your updated view on the leverage metric target?

Our original target was the end of 2024, but it could extend into early 2025, depending on our progress with cost reductions and the macro demand conditions. We also aim for revenue synergies from M&M's project pipeline to contribute in 2024, which will further assist in achieving our deleveraging goals.

Next question is coming from Patrick Cunningham from Citi. Your line is now live.

Do you see potential portfolio actions if demand doesn’t improve? Are there assets that might be considered for divestiture?

We will remain opportunistic and disciplined regarding divestments. We are exploring potential divestiture targets from both the heritage Celanese and M&M portfolios, ensuring we understand the future potential and value of these assets.

Regarding your Eco CC brand with recycled CO2 products, what sort of premiums do you anticipate achieving?

We initiated this project as a cost-effective option for methanol. There will likely be a premium for sustainable products, hence our intention is to convert this methanol into more valuable lower-carbon derivatives. The value stems from end-users wanting to lower their carbon footprint, which we see as a significant market opportunity.

Next question is from Jaideep Pandya from On Field Research. Your line is now live.

Could you discuss how you add value in your nylon portfolio despite the new Asian capacity and your long-term strategy regarding polymerization? Would you consider becoming more asset-light?

We remain optimistic about PA66 despite increased capacity in China. Much of that is basic polymerization, while we focus on differentiation through compounding. Our PA66 applications in electric vehicles and electrification trends will only enhance our prospects. The uniqueness of our products, required fire retardants and other specifications allow significant value addition.

Kevin, we will take the next question as our last one, please.

After the start-up of Clear Lake BAM in early 2024, do you have the option of permanently closing the VAM unit in Frankfurt, or must you maintain flexibility through temporary closures? Is there a cost difference?

We have a solid network for BAM after building a new acetic acid plant in Clear Lake and are confident in this setup.

Regarding any impacts from the prolonged Delrin divestment process on the Engineered Materials market, it’s challenging to establish causation, but we haven’t noticed any effects.

We’ve reached the end of our question-and-answer session. Thank you, everyone, for listening in today. We are available for any follow-up questions that you have. Kevin, please go ahead and close the call.

Thank you. That does conclude today’s teleconference and webcast. You may disconnect your line at this time, and have a wonderful day. We thank you for your participation today.