Greetings, and welcome to the Huntsman Corporation's Second Quarter 2022 Earnings Call. As a reminder, this conference is being recorded. I would now like to turn the call over to Ivan Marcuse, Vice President of Investor Relations. Thank you. You may begin.

Thank you, Darrell, and good morning, everyone. Welcome to Huntsman's Second Quarter '22 Earnings Call. Joining us on the call today are Peter Huntsman, Chairman, CEO, and President; and Phil Lister, Executive Vice President and CFO. This morning, before the market opened, we released earnings for the second quarter '22 via press release and posted to our website. We also posted a set of slides on our website, which we will use on the call this morning while presenting our results. During the call, we may make statements about our projections or expectations for the future. All such statements are forward-looking statements. And while they reflect our current expectations, they involve risks and uncertainties and are not guarantees of future performance. You should review our filings with the SEC for more information regarding the factors that could cause results to differ materially from these projections or expectations. We do not plan on publicly updating or revising any forward-looking statements during the quarter. We will also refer to non-GAAP financial measures, such as adjusted EBITDA, adjusted net income, and free cash flow. You can find reconciliations to the most directly comparable GAAP financial measures in our earnings release, which has been posted to our website. I'll now turn the call over to Peter Huntsman, Chairman and CEO.

Thank you, Ivan. Good morning, everyone. Thanks for taking the time to join us. Let's walk through Slide number 5. Adjusted EBITDA for our Polyurethanes division in the second quarter was $229 million compared to $208 million a year ago, a 10% increase. We achieved the increase in adjusted EBITDA and corresponding 17% EBITDA margins despite a volatile economic backdrop of unprecedented energy costs in Europe, COVID-related lockdowns in China, and FX headwinds. Please note that we did receive an insurance settlement, which benefited our second quarter results in polyurethanes by $15 million. We focused on our selling price and our value over volume strategy intently throughout the quarter. We passed through approximately $900 million of annualized increases in raw materials and energy costs, with approximately half being related to higher energy prices. Overall, volumes declined 4% as we continued to pursue our value-based strategy. In the Americas, negative growth was driven by some weakness in consumer-related end markets, primarily furniture, and ongoing supply constraints in our Huntsman Building Solutions business. In Asia, our growth was negatively impacted due to government-mandated lockdowns in Shanghai as the Chinese government attempts to control COVID outbreaks. Volumes in Europe were up compared to the prior year due to favorable comparisons as we completed our once every four-year Rotterdam turnaround in the second quarter of 2021. Excluding the Rotterdam turnaround, our volumes declined year-on-year. Addressing European near-term demand, we currently expect volumes to contract across several end markets due to persistent and extraordinary natural gas prices impacting consumer and industrial demand for polyurethanes. During the second quarter, natural gas prices averaged around $31 per MMBtu. Today, they are at a record high of approximately $60 per MMBtu, over six times the price in the United States. To remind you, for every $1 per MMBtu change in natural gas, our variable costs in our European polyurethane business change by approximately $10 million on an annualized basis. While the European facilities are not insulated from the price volatility in natural gas, it is worth pointing out that our largest natural gas derivative consuming facilities are in the Netherlands and the United Kingdom, which have different supply dynamics and are relatively less dependent on Russian supplies compared to Germany. It should also be noted from a natural gas pricing perspective that approximately 60% of our MDI natural gas-related production cost requirements are linked to U.K. pricing via our upstream nitrobenzene and aniline facilities. Of course, our focus in Europe remains on maintaining the quality of our business and related pricing and margins as we navigate through a high level of economic volatility in the second half of the year. The Huntsman Building Solutions platform recorded second quarter revenues of approximately $154 million, up 16% year-over-year, driven by pricing. We are well above the profitability we targeted when we launched Huntsman Building Solutions. That said, we were hindered by constraints in blowing agents, which negatively impacted volumes versus the prior year. As we look into the early part of the third quarter, we do see some destocking of inventory at our customers due to the impact mortgage rate increases in the U.S. are having on housing activity. We estimate that roughly half of HBS serves residential markets while the other half serves commercial construction markets. We will continue to remain focused on growing HBS internationally and not valuing our polymeric MDI in spray foam insulation systems. Spray foam is an increasingly versatile insulation with superior energy-saving properties, which we expect to gain market share over time as energy conservation remains a priority for consumers and governments. For the second sequential quarter, our polyurethanes automotive platform saw improved volumes year-over-year. Our automotive business is well-positioned to recover with the market over the coming years, and we are focused on bringing innovative solutions to our customers. As we previously announced, we achieved a key milestone in the second quarter as we completed the commissioning of our new MDI splitter in Geismar, Louisiana. Today, the new splitter is running well. The strategic investment will be a catalyst and allow further upgrades to our Americas portfolio. As we disclosed previously, once the new splitter is fully operational, we expect it to add an incremental $45 million of annual EBITDA to our results by 2024. Lower propylene oxide margins in China drove our equity earnings lower year-over-year. Our joint venture contributed approximately $18 million in equity earnings for the quarter, well below the $42 million reported the year earlier. Given current levels of PO margins, we expect that equity earnings could be approximately $60 million lower in 2022 versus the record earnings of 2021. In addition to upgrading margins by driving molecules into our higher-value margin products, we intend to further optimize our cost structure in polyurethanes to improve margins. On an annualized basis, we delivered more than $40 million from our first phase of cost optimization synergies in polyurethanes. As we stated last quarter, we are targeting an additional $60 million by the end of 2023. These cost savings will be achieved through optimization of our footprint, for example, by exiting regions in markets where the returns do not justify long-term supply, such as Brazil and other regions with similar dynamics, and continuing to lower back-office expenses. We expect the lion's share of these savings to impact 2023. Looking into the third quarter, we are closely watching all relevant economic and end market indicators, particularly the situation in the European energy crisis. As we sit here today, we expect polyurethanes adjusted EBITDA for the third quarter to be in the range of $170 million to $200 million. Let's turn to Slide number 6. Turning to Performance Products, we reported adjusted EBITDA of $152 million for the second quarter, with an adjusted EBITDA margin of 31%. The industry dynamics in Performance Products remain favorable. In addition, with our commercial excellence programs and continuing focus on cost control, this division should continue to deliver strong results. We do believe that certain amine markets in China are moderating. Volumes decreased 3% compared to the prior year period as we continue to focus on securing value over volume and address a short-term operational issue at our maleic facility in Europe, which has since been resolved. The construction markets we sell into, specifically in the U.S., which is primarily non-residential construction, continue to have good underlying demand. We also continue to see positive dynamics in our global fuel additives markets. We're impacted in China by the government-mandated lockdowns and softened composite demand. Despite the lower volumes, we still saw profitability and margin quality significantly improve year-on-year in all three regions. Last year, we announced targeted capital investments in polyurethane catalysts and differentiated chemicals serving the electric vehicle, semiconductor, and insulation markets. These projects continue to progress and remain on schedule to be completed on time. We expect all these projects to contribute positively to results in 2023, delivering more than $35 million of EBITDA benefits in 2024. As a reminder, we hold leading market positions in many of our main product lines, as well as our maleic anhydride. Performance Products remains a highly attractive division, and we continue to evaluate strategic organic investments to grow this business over the long term. Looking to the third quarter, this tends to be seasonally weaker than the second quarter, and there are some currency headwinds. That said, we currently expect another strong quarter from Performance Products, with third quarter adjusted EBITDA in the range of $130 million to $140 million, solidly above the prior year. Let's turn to Slide number 7. Our Advanced Materials division reported adjusted EBITDA of $67 million in the quarter, significantly above last year's second quarter and equal to the strongest quarter in the division's history. We achieved 20% adjusted EBITDA margins with a disciplined approach to value over volume. We recorded record results in Advanced Materials, even though aerospace profitability is still recovering at approximately 40% below pre-pandemic levels. In addition to improving product mix, we've been aggressive in achieving pricing to more than offset raw material inflation. We continue to deselect lower-margin business while increasing our higher-volume and value sales where possible. We are growing at or above several of our industries, with adhesives markets as we deliver solutions to our customers, and our industrial adhesives portfolio is positioned to grow further over the coming years. In addition, our recent acquisitions of Gabriel and CVC are contributing strongly in delivering above our average adjusted segment EBITDA margins as we execute our pricing strategies and capture synergies. Volumes for the segment declined 16%, with much of the volume decline a result of our conscious decision to exit commodity BLR manufacturing in the U.S. as well as lower-margin coating markets. We did see modest growth in aerospace demand versus last year, leading to a 25% year-on-year improvement in profitability. While aerospace remains well below pre-pandemic levels, the fundamentals of this industry remain strong, and we expect to see continued improvement over the next couple of years back to pre-pandemic levels. Currently, we still see relatively stable underlying demand in many of our core specialty businesses in the Americas and Europe. We do expect normal seasonality, currency headwinds, and some softening in Europe to impact the third quarter versus the second quarter. That said, we still expect to show a solid improvement versus the prior year. We expect adjusted EBITDA for this segment in the third quarter to range between $58 million and $63 million. Let's turn to Slide number 8. Our Textile Effects division reported adjusted EBITDA of $22 million for the second quarter. Sales declined by 7%, driven by a 16% decline in volume, and the business was adversely impacted by both new and continuing COVID-related lockdowns in China. As a reminder, roughly 60% of Textile Effects sales are in Asia, with China representing more than half of those sales. Also impacting volumes were lower home and hospitality sales due to lower North American imports. Despite these volume headwinds, we remain focused on improving our differentiated specialty businesses while deselecting low-margin value-oriented volumes. In addition, we took aggressive pricing actions to offset substantial raw material and logistical headwinds. As a result of these actions, we were able to improve variable contribution margins, which helped to offset the negative impact of lower volumes. We remain optimistic about the long-term fundamentals of Textile Effects. We are confident our specialty-oriented portfolio will continue to develop as brands focus more on sustainability and product innovation. We expect orders to pick up as retailers stock up for the critical holiday period and related winter and spring apparel trends. We currently expect adjusted EBITDA in the third quarter to be similar to the prior year and project a range of $20 million to $22 million. I'll turn a few minutes over to our CFO, Phil Lister.

Thank you, Peter. Turning to Slide 9. Adjusted EBITDA increased by $98 million to $432 million, an increase of 29% compared to the second quarter of 2021. Sequentially, adjusted EBITDA improved by $17 million or 4%. As Peter highlighted, during the second quarter, we did benefit from an insurance settlement within our Polyurethanes division, which increased our adjusted EBITDA by approximately $15 million. Our adjusted EBITDA margins improved year-on-year by approximately 2% to just over 18%, a sequential improvement from 17% margins in the first quarter. Overall volumes declined by 6%, a combination of our value-based strategy as we continue to deselect lower-margin business and COVID-related lockdowns in China. Gross profit improved by $178 million as we increased prices by approximately $485 million, more than offsetting approximately $305 million of higher raw materials. SG&A remains under control despite significantly higher inflation and tight labor markets. SG&A to sales was below 9% in the second quarter and well ahead of our commitment to achieve this target in 2024. The negative variance of $31 million in FX and other is driven by a $24 million year-on-year equity earnings reduction from our China propylene oxide joint venture and the overall strengthening of the U.S. dollar. Regarding foreign exchange, our main translation exposure is with the euro, which weakened by 11% in the second quarter versus the prior year. Through the first six months of the year, the impact from FX on our results was approximately $30 million. Assuming a USD to euro rate in quarter 3, the estimated FX impact on our quarter 3 adjusted EBITDA results would be approximately $20 million. Let's turn to Slide 10. Our cost optimization and synergies plans remain on track. We closed quarter 2 at an annualized run rate of $140 million with a run rate target of $170 million by year-end and $240 million by the end of 2023, including $100 million from the new initiatives we announced at our Investor Day. During the second quarter, we took the following steps: firstly, consistent with our Investor Day announcement to expand our global business services, we began the process of setting up regional service centers in Krakow, Poland, and San Jose, Costa Rica. We expect those locations to be fully operational during 2023. Secondly, as Peter has indicated, we are exiting certain markets in polyurethanes. In the second quarter, we communicated to our associates that we would exit Brazil, Argentina, and Chile by the end of 2022, and we are in the process of evaluating positions in Southeast Asia and India. We have a number of additional cost savings initiatives in progress, including supply chain optimization, which we announced at our Investor Day. We remain confident of achieving our goals by the end of 2023. Turning to Slide 11. Regarding free cash flow, net cash provided by operating activities was $231 million compared to an outflow of $7 million in the prior year period. Free cash flow was a positive $162 million, including a net benefit of $78 million from the final Albemarle settlement payment. We reviewed the settlement proceeds on our first quarter earnings call. Working capital has risen by almost $400 million since the beginning of 2022, with raw materials setting record highs and our receivable balance climbing as we have passed on these higher costs. Going forward, we are not projecting a further escalation in raw materials. Although, as indicated, we are watching European natural gas closely. We remain confident in achieving our 40% free cash flow conversion target in 2022. Capital expenditures remain on track towards our $300 million spend target for the year as we switch our attention from our newly commissioned Geismar MDI splitter to our various growth projects in our Performance Products division. Our balance sheet remains strong at 0.6x net debt to EBITDA at the end of quarter 2 and just over $2 billion in liquidity. During quarter 2, we did announce a new $1.2 billion sustainability-linked revolver, which matures in 2027. Our adjusted income tax rate for the quarter came in at 22% at the lower end of our expected long-term range of 22% to 24%. Our adjusted earnings per share was $1.28, an increase of $0.42 or 49% compared to quarter 2 of last year. We repurchased $291 million of shares in the second quarter, making a total of just over $500 million for the year. We are on track towards our target of $1 billion of share repurchases to be made in 2022, and we remain focused on delivering meaningful returns to our shareholders. Combining share repurchases and dividends, we are on pace to achieve a return of capital yield to shareholders in excess of 15% in 2022. Peter, back to you.

Phil, thank you very much. Two years ago, during our second quarter report, I compared the economic shocks and volatility of that time to the same as the Whiskey Rebellion in 1791. As I look at today's lack of clarity and uncertain outlook around the world, I'm reminded of the words of St. Paul to the Corinthians, 'For now we see through a glass, darkly.' I am not sure what he was referring to, but it seems he at least had something similar in mind regarding European gas prices. We reported today adjusted EBITDA of $432 million, margins in excess of 18%, more than $500 million in stock repurchases over the past six months. Our balance sheet is strong, and our business is on track to meet our objectives that we set out at our most recent Investor Day meeting. Looking into the third quarter, we've given guidance of between $330 million and $375 million of adjusted EBITDA. I see three issues that we will be facing during the second half that may help us exceed these numbers or not. The biggest challenge we see today is the energy crisis and natural gas volatility in Europe and, to a lesser degree, globally. As I pointed out in my earlier remarks, every dollar of price movement affects us about $10 million annually. During these past two weeks, European gas prices moved nearly 20% upwards, costing us in excess of $100 million on an annualized basis of added costs. This past Friday, prices dropped 4%, saving us nearly $25 million on an annual basis. This morning, prices rose greater than 15%. I do not see any reason why this volatility would not continue since Europe has become overly dependent on the same means of propulsion Magellan used to navigate the globe, mainly wind, and natural gas supplies from an unreliable and dangerouse supplier. To counter this, we will be aggressive with our pricing. As we stated earlier, we've converted the vast majority of our European sales contracts from quarterly contract prices to monthly pricing where we can also add surcharges. In some cases, this may mean that we are walking away from certain sales. We're also evaluating the feasibility of reducing production at some of our largest European facilities and increasing our imports from Asia and North America. It has become clear that Europe's energy problems are not likely to be resolved anytime soon. Accordingly, we are looking more aggressively at our cost structure. We announced this past month that we'll be relocating a portion of our European business services to Krakow, Poland. We will look at further consolidation and site rationalizations as we align our business around a more permanent reality for Europe. Our second challenge is inflation in North American markets and increasingly around the world. Increasing costs and rising interest rates will likely slow consumer demand and lower consumer confidence. In our largest North American business, polyurethanes, we started operating our new MDI splitter to give us greater access to more consumer solutions and higher-margin materials. In our Advanced Materials division, we will continue to see the benefits of our adhesives and additives acquisitions, which will help us reduce costs as we grow the business. We are seeing encouraging signs in the aerospace sector and many parts of the modernizing power in the electronic sector as well. Organic projects in our Performance Products division to add capacity to higher margin carbonate for EV batteries, semiconductor chips, and catalysts continue to be on pace. We will continue our pricing excellence, putting value over volume. Our third challenge is the ongoing lockdowns in China as their government tries to balance the need for economic recovery with controlling COVID. Our Chinese business continues to perform well despite these tensions, as the vast majority of our sales are domestic, with virtually all of our associates being local. China will continue to be a vital market for us, and we are focused on selling up to increasing margins, not just moving volume. We will leverage our technology to meet market demands. We will remain focused on value over volume and might disengage from some geographic regions where we do not see strong enough returns. We are either on track or ahead of schedule on the multiple projects that make up our previously announced $240 million cost optimization program. We still expect to complete this by the end of next year. We will continue to use our balance sheet to return value to shareholders through dividends, stock repurchases, and evaluating M&A opportunities. In conclusion, while we may not be able to see clearly into the market conditions before us, we are in an excellent position to capitalize in areas of strength. We will remain focused on value over volume, working with our customers to provide market-leading formulation technology solutions. We will not be diverted from our cost optimization and synergy plans. To the contrary, we intend to move faster and more aggressively as we align our businesses to the realities of the marketplace. We have the balance sheet and the business results to support buying $1 billion of shares this year and continue into the next while also looking carefully at bolt-on acquisitions and divestitures. Whether conditions improve or remain volatile, we are uniquely positioned to create shareholder value.

With that, why don't we start with the question-and-answer section for this call?

Peter, I was wondering if you could elaborate on your decision to exit polyurethane businesses in South America. What drove that decision? And what sort of impact on sales and earnings might we expect as you move forward there?

Well, Kevin, good to hear from you. Yes, as we look at the long-term margin prospects in this market, we consider the logistics, the working capital that’s tied up, the tariff costs, and the repatriation of capital. When we factor all of these elements, even if you’re earning the same margin in many of those markets as you are in North America, your actual netback—the natural value being created—in some cases drops from what otherwise would be a 20% margin down to mid- to low-single-digit margins. I don’t foresee this changing. So as we evaluate the markets, we are focused on where the growth and value opportunities are, particularly in regions that reward us for innovation and the technology investments we make. While we see some growth opportunities in these markets, we don’t see the same value opportunities as in North America. That doesn’t mean we will completely abandon those markets; however, we will change our focus on the infrastructure we hold in those areas, the SG&A we maintain, and related costs.

Kevin, just to add, the South American Polyurethanes represent about $60 million of revenue, less than 1% of Huntsman's overall sales revenue. The North American market itself has a high demand for the products we would otherwise ship to South America.

Congrats on the strong results. Just digging into the Q3 polyurethanes outlook a little bit more. So it's down about $44 million quarter-over-quarter at the midpoint. I think $15 million of that would be the insurance proceeds not repeating. Is there any way you could walk through the other moving parts in that guidance, the impact from just lower durables demand from higher benzene costs and then from higher natural gas costs?

Yes. I think we will see two impacts in the third quarter. The first and foremost is going to be the higher cost of our raw materials, particularly around natural gas products. The variability there is significant—$10 million, $20 million, $30 million, or even $40 million. The volatility we’ve seen in gas pricing over the last couple of weeks could affect our earnings. Our ability to move pricing through to consumers will also be pivotal in determining our third quarter outcome. We must navigate pricing increases and the volume implications that such price hikes might invite. The second factor is the weakening euro, which could also impact our results between quarter 2 and quarter 3 considerably.

Yes, as Peter mentioned, polyurethanes carry our largest exposure in Europe from a divisional perspective, and with the euro weakening further, you can expect an impact of about $5 million to $10 million between quarter 2 and quarter 3.

Peter, the press release talks about opportunities that might present themselves to capitalize on Huntsman's strong balance sheet. Are you talking about bolt-ons here, buybacks, or both, or perhaps something else?

I think we’re speaking about both issues. We have set aside $1 billion for share repurchases, and if our share price is down relative to a quarter ago or the overall market multiples for the chemical industry, we've got a greater opportunity for capital deployment and buying back shares. At the same time, we also see the multiples for possible acquisition targets dropping, so we must proceed with caution on the M&A side. If there’s an opportunity that is accretive and supplements our technology, we will consider it carefully. However, just because the multiples are dropping doesn’t mean we will aggressively pursue acquisitions.

I was just wondering about the surcharges and the pricing and how volatile things are—how fast can surcharges go on and come off versus traditional pricing? Is it a relatively easy process, or does it take time to work through?

It really depends on the sector, customer, and product. It also depends on what competitors are doing. We don't want to comment on other companies' pricing strategies, but by being aggressive on pricing, we can have a rapid response to changes in raw material costs. Typically, we have a couple of weeks to 30 days before a raw material price increase is reflected in our P&L. Therefore, we strive to push those costs onto consumers as quickly as possible. We've been consistent in this approach regardless of market conditions.

I wanted to ask you about the dynamics of European energy and Russian gas on your German competition, but you indicated that you didn't want to go there. So instead, I want to return to the range of $170 million to $200 million on polyurethanes for the quarter. July is in the books already, so you have good visibility on that. If you assume normal seasonality in August and September, where are you seeing this range—are you towards the middle end, the high end, or the low end?

We literally make these projections in the last couple of hours before the call. I would say that right now, we are in the middle of that fairway. If we see a massive spike in raw material prices, that could hinder our guidance significantly, but if some relief comes, we could see favorable developments as well. Given the volatility we've experienced, it's a challenging time for accurate forecasting.

I just wanted to talk broadly about the polyurethane industry as you see it now. Europe has significant capacity, and we know the energy pricing situation there. How do you anticipate polyurethane utilization rates globally and supply-demand fundamentals evolving?

You're asking an excellent question. There is a significant cost disparity between North America, Asia, and Europe, with Europe holding a massive $1,000 per ton manufacturing cost disadvantage. If this disparity holds for the next 12 to 18 months, one can’t help but question the sustainability of existing capacities in Europe. Longer-term, companies must weigh their investments carefully, considering regulatory pressures and energy costs. These dynamics are crucial for recovery as we look ahead and evaluate how Europe positions itself competitively.

Peter, regarding polyurethanes, are there specific end markets that currently offer good returns? Are there those that do not? How should we consider global dynamics?

There are certainly attractive and less attractive markets. We shouldn’t focus solely on quarter-to-quarter fluctuations but look for long-term growth in areas like automotive, particularly in electric vehicles, where demand is increasing. While we want to maintain a presence in commoditized segments, we aim for higher-margin opportunities that align with our value strategy.

Given the variance in the performance outlook for the maleic market, do you believe this remains structurally favorable or at risk? How do you anticipate performance in a softer macro environment?

We are diversifying our maleic products into various downstream markets. Despite the UPR sector being a key volume driver, we anticipate stability and better profit margins moving forward, thanks to our diversification and focus on value.

This is a follow-up on pricing strategies. What is your ability to maintain prices in Performance Products as costs potentially decrease? How much of this is structural, and how much is related to surcharges that may be removed?

In Performance Products, most of the price changes stem from actual product value rather than just cost changes. We hope to maintain our pricing levels even if raw material prices ease due to the value we provide through our products. Our focus on selling effects rather than solely on product costs enhances our pricing stability.

Peter, regarding Advanced Materials, do you have updated thoughts on how much aerospace will be up this year and when you might catch up to pre-pandemic levels?

I hope to see substantial recovery in aerospace, expecting to regain approximately 40% of what was lost during the pandemic. A smooth and steady recovery could see us return to pre-pandemic levels around the beginning of 2024. The shift towards lightweighting and other technological advancements will be crucial factors in shaping our recovery trajectory.

Regarding Advanced Materials and industrial markets in Europe, you expect stability, which seems different from what companies have shared. What enables this stability for Huntsman in Advanced Materials?

In Europe, we see promising opportunities in aerospace, particularly with Airbus as a key customer, as well as in the automotive sector focused on lightweighting. Projects in the power sector further support our optimism given their currency and application relevance in innovative markets. While some sectors may face challenges, we expect to see continued demand in these key areas.

Thank you. We have reached the end of our question-and-answer session. This does conclude today's teleconference. We appreciate your participation. You may disconnect your lines at this time. Enjoy the rest of your day.