Greetings, and welcome to the Huntsman Corporation First Quarter 2023 Earnings Call. At this time, all participants are in a listen-only mode. This conference is being recorded. It is now my pleasure to introduce your host, Ivan Marcuse, Vice President of Investor Relations. Thank you, sir. You may begin.

Thank you, Maria, and good morning, everyone. Welcome to Huntsman's First Quarter 2023 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 our earnings for the first quarter of 2023 via press release and posted them 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 substance 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 actual 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 or loss, 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, our Chairman and CEO.

Thank you, Ivan. Good morning, everyone. Thank you for joining us. Let's move to Slide number 5. Adjusted EBITDA for our Polyurethanes division in the first quarter was $66 million. We continue to experience significant destocking across our markets, particularly in North America. This destocking, along with a competitive pricing environment, has put considerable pressure on the Polyurethanes business during the quarter. However, we saw business conditions improve sequentially and in both our European and Asian regions, leading to a nearly 80% increase in EBITDA compared to the fourth quarter. Overall sales volumes in the quarter fell by 21% year-on-year. Loans also decreased by 6% sequentially, which is consistent with normal seasonality. Every region saw a decline in the quarter compared to the previous year, with the Americas responsible for two-thirds of the reduction, stemming from lower demand and significant destocking affecting sales volumes. Our European region did show a sequential improvement compared to the fourth quarter. As business conditions stabilized, destocking tapered off and costs declined. From our perspective, business conditions appear to be gradually improving from last year's low in Europe. Our Automotive business showed volume improvements compared to both the prior year and previous quarter. Most other major markets in Europe had stable to improved sequential volume trends. Profitability in the region benefited from a decrease in natural gas prices from around $23 per MMBtu to about $17 per MMBtu. While natural gas costs are much lower now, they're still six times higher than U.S. Gulf Coast prices. Additionally, benzene prices remained relatively stable sequentially, but we noted an increase throughout the quarter, compounded by ongoing competitive pricing pressure on MDI. Despite this, we are making progress on our previously announced restructuring initiatives in Europe and expect to see some cost savings positively impacting our margins as we advance through the remainder of 2023. We will keep managing costs and mass production aggressively to respond to lower demand. With reduced costs and moderately improved demand, we anticipate profitability in our European region to enhance throughout the year. As a result of this consistent improvement, we will be restarting our smaller MDI unit and will have both our MDI lines operational in the second quarter. This will provide us maximum flexibility to align our supply with demand as we move into the seasonally higher sales months. Europe is and will continue to be a core region for our Polyurethanes business, and we will benefit for many years from the region's ongoing commitment to enhancing energy conservation and efficiency. We are well-positioned to offer energy-saving solutions for both residential and commercial construction markets, as well as innovative advancements in lightweight automobile design. In China, we've begun to see some positive developments with steady improvements in the first quarter, aligning with our expectations. We anticipate China to maintain a steady yet positive trajectory as the economic environment gradually returns to normal. We are observing favorable demand trends in end markets like cold chain, infrastructure, and certain consumer-related sectors. Our China joint venture contributed about $11 million in equity earnings for the quarter. The most significant challenge that affected the Polyurethanes' first quarter results and has persisted into the second quarter is the high level of destocking in our Americas region, notably in our construction businesses. Two-thirds of our Polyurethanes Americas' portfolio is centered around construction end markets. Approximately 40% is commercial construction and 60% residential, with 70% of that tied to new residential buildings. For composite wood products related to residential construction, demand was significantly pressured throughout the first quarter, with housing starts down roughly 30% year-on-year. This pressure has eased as we enter the second quarter. Our spray foam business appears to have stabilized and is now experiencing slight improvements in order patterns. In our commercial insulation markets, aggressive destocking continues and may persist through most of the second quarter. We have limited visibility into the full supply chain, making it challenging to predict when our customers will revert to normal order patterns. While factors like rising interest rates are placing pressure on new construction spending, about 65% of our commercial business is linked to repair and remodeling activities, such as reroofing, which we believe will normalize once destocking ends. Additionally, we are aligned with the energy efficiency movement and will benefit from enhanced building codes and the U.S. government's Inflation Reduction Act. Beyond construction, our global automotive business, which makes up about 15% of the Polyurethanes portfolio, demonstrated volume improvements both sequentially and compared to the first quarter. We still expect automotive volumes to increase in low single digits for the year. In our elastomers segment, we see stronger profitability from the fourth quarter into the first quarter, aided by margin expansion despite overall demand weakness. We are taking decisive and proactive measures to make our Polyurethanes business more efficient, stronger, and better positioned for when current challenging macro conditions improve. We are continuously monitoring and adjusting production rates at both Rotterdam and Geismar to ensure we actively manage our working capital with cash generation as our primary focus. Furthermore, we remain on track to achieve the $60 million in cost savings we outlined for Polyurethanes. This includes exiting regions that are not yielding acceptable returns and consolidating additional back-office functions. We have now exited our Southeast Asia polyurethane site, in addition to our previously announced exit from South America last year. We are also working towards an orderly exit from our Russian operations while ensuring compliance with multiple sanctions in a complex political and regulatory environment. Currently, Russia accounts for less than 1% of our corporate revenue, and we hope to finalize our exit during 2023. Looking ahead to the second quarter, we expect to see a seasonal improvement overall. We do anticipate continued destocking in the United States, but we foresee that moderating as we proceed through the quarter. We expect the current positive demand trends in Europe and Asia to continue. In summary, we project Polyurethanes adjusted EBITDA for the second quarter to be in the range of $85 million to $100 million. Now let's turn to Slide number 6. Performance Products reported adjusted EBITDA of $71 million for the first quarter, resulting in a 21% EBITDA margin, despite significantly lower demand compared to the first quarter last year. This margin aligns with our long-term expectations of 20% to 25%. The decrease in adjusted EBITDA from the prior year was mainly due to a 31% decline in volumes year-over-year, partially offset by a slight improvement in unit variable margins and reduced fixed costs. The volume decline stemmed from lower demand across all regions, particularly in our performance amines and maleic anhydride sectors. Despite the substantial year-on-year drop in demand, we observed quarter-on-quarter improvements, especially in Europe and Asia, signaling that the destocking seen in the fourth quarter is behind us. Markets with positive sequential trends included construction, coatings, and adhesives, which all experienced significant destocking in the last quarter. We also noted modestly positive sequential trends in our product lines catering to agriculture, energy, and electronic chemicals, notably semiconductor and lithium-ion batteries. Our capital improvements into our differentiated performance amines products supporting polyurethanes, EV batteries, and semiconductor markets are on track, as we previously indicated. Assuming stable macro conditions, we expect these projects to commence by the end of 2023. Performance Products is a valuable division, and we will continue to invest in high-return organic projects while considering potential bolt-on opportunities when they arise. So far in the second quarter, overall demand remains below the prior year's level, but is stable compared to the first quarter across all regions. We believe customer inventories are below average, and anticipate a swift pickup in our volumes once end market demand recovers. Overall, we expect Performance Products' second quarter adjusted EBITDA to be between $60 million and $70 million, based on current demand visibility and moderate pricing pressure in ethyleneamines and maleic anhydride. Now let's move on to Slide number 7. Advanced Materials reported adjusted EBITDA of $48 million for the quarter, an increase of $7 million compared to the fourth quarter and a decline from the previous year, primarily due to lower sales volumes. Destocking appears largely resolved, although we still face pressure in our infrastructure coatings market. Overall volumes increased quarter-on-quarter, contributing to the adjusted EBITDA improvement. The sales volume decline of 21% was partly attributable to our ongoing reduction of bulk liquid resin commodity sales. Our core specialty business did see a decline, but not as severe as the segment average. The Americas was the weakest area, impacted by low demand primarily from our coatings, adhesives, and general industrial sectors. Our aerospace business continues to show encouraging trends. Sales were stable compared to the first quarter of 2022, mainly due to some supply chain issues and timing affecting sales during the quarter. Our order backlog is strong, and we expect growth as we move through 2023 and into 2024. The anticipated demand increase for our products is heavily reliant on widebody production rates, which are benefiting from increased travel and new aircraft orders from airlines. We maintain the expectation that this critical and profitable sector will return to pre-pandemic levels during 2024. We are actively pursuing bolt-on acquisitions to expand our Advanced Materials portfolio and enhance overall business returns. We are also advancing our organic investments, such as our MIRALON business, which offers innovative technology to capture methane, converting it into hydrogen and a carbon material that can be utilized across various markets. While still in development, we are planning to aggressively scale this business in the coming years. With reduced destocking and seasonal improvements, we expect Advanced Materials to deliver better results in the second quarter compared to the first quarter. We project second quarter adjusted EBITDA for this division to be in the range of $50 million to $56 million, with improved EBITDA margins. I will now hand over some time to our Chief Financial Officer, Phil Lister.

Thank you, Peter. Good morning. Let's turn to Slide 8. Adjusted EBITDA for the first quarter was $136 million compared to $387 million in quarter one of 2022, and $87 million in the prior quarter. The decline versus the prior year was driven by reduced volumes of 24% across the portfolio, particularly in construction-related markets. Americas volumes declined by 31%, Europe by 28%, and Asia by 21%. As a reminder, approximately 40% to 45% of our portfolio is linked to global construction markets via commercial, residential, and infrastructure spend, which all remained under pressure. Year-on-year pricing across our total portfolio was flat, while the cost of sales increased by $40 million. Polyurethanes' unit variable margins declined with year-on-year pricing pressure in all regions and increased raw material costs. In Advanced Materials, we expanded unit variable margins as price improvements exceeded cost increases, while in Performance Products, we managed to maintain last year's strong unit margin performance. Sequentially, volumes improved slightly in Performance Products and Advanced Materials, while Polyurethanes volumes were lower as destocking continued throughout the quarter, in addition to the normal seasonal decline. We did expand unit favorable margins from quarter four in all three divisions, improving EBITDA by $65 million, as reduced costs more than offset some downward pressure on selling prices. Raw materials, in particular European natural gas, declined compared to the fourth quarter. This cost decline led to an improvement in European profitability and positive adjusted EBITDA for the region. We remain focused on our European restructuring efforts during 2023. SG&A costs remain under control, while inflation remains high across all of our operations around the world, and delivery of our full-year cost optimization savings during the remainder of the year remains paramount. SG&A as a percentage of sales was 9% on a last 12-month basis. As a reminder, we also have an increase in 2023 of approximately $40 million of noncash pension expense lowering adjusted EBITDA. Year-on-year, foreign exchange movements impacted the business by approximately $4 million as the U.S. dollar strengthened. Sequentially, we saw a benefit of approximately $3 million as the dollar weakened during the first quarter compared to the fourth quarter. Equity income from our propylene oxide joint venture in China declined compared to quarter one of last year by $2 million, though improved slightly sequentially. Adjusted EBITDA margins came in at 8% for the company, with all three divisions improving sequentially: Polyurethanes at 7% margins, and Performance Products and Advanced Materials continuing to deliver higher returns at 21% and 17% margins, respectively. Let's turn to Slide 9. We concluded quarter one with approximately $240 million of run-rate savings from our starting point in 2020. In Europe, we have now completed all of our Works Council negotiations and are progressing with the plans we laid out at the end of last year to reduce our European cost base by approximately $40 million. Regarding our Global Business Service operations, we're expanding our new regional service hubs in Costa Rica and in Poland to include customer service and certain supply chain roles, as we continue to build out those two centers. We're also addressing improvements that we can make to our manufacturing indirect costs with a focus on some of our larger facilities. In addition, as previously anticipated, we did complete our exit from our Polyurethanes Southeast Asia sites at the end of the first quarter. We expect to meet or exceed our $280 million annualized run rate target by the end of 2023. And as we guided on our last call, delivery of our 2023 savings amounts to an in-year benefit of approximately $80 million compared to 2022, excluding the impact of inflation and the increase in noncash pension expense. Turning to Slide 10. First quarter operating cash flow from continuing operations was an outflow of $122 million driven by lower levels of profitability, a seasonal adverse movement in working capital, as well as our annual insurance premium payment. Free cash flow for the first quarter was an outflow of $168 million, and our last 12-month free cash flow to adjusted EBITDA conversion ratio stands at 41%, excluding proceeds we received from the Albemarle settlement in quarter two of 2022. Capital expenditures from continuing operations was $46 million for the first quarter, and we remain on track with our Performance Products' projects targeted at energy-saving insulation, semiconductors, and electric vehicles. As a reminder, given the current economic environment and state of the construction markets, we have reduced our targeted capital spend by approximately 10% compared to 2022, to a range of $240 million to $250 million for the year. During the quarter, we completed the sale of our Textile Effects division to Archroma. As previously indicated, we expect final net cash proceeds from the sale of approximately $500 million after tax and after customary closing statement adjustments. We closed out the quarter with $2 billion in liquidity and net debt leverage of one time based upon the last 12 months adjusted EBITDA. As we progress through the year, we expect our leverage ratio to climb from its current level given a decrease in LTM adjusted EBITDA. Our balance sheet remains investment grade, and we continue to be committed to a balanced capital allocation policy. Adjusted earnings per share for the first quarter was $0.20 per share. Our 2023 increased dividend is in place at $0.95 per share, a 12% increase over 2022, and the dividend yield is currently approximately 3.5%. We repurchased $101 million of shares in the first quarter, consistent with the guidance we gave on our prior call and in line with a total return of capital yield to shareholders of approximately 10% at current levels of market capitalization. Peter, back to you.

Thank you, Phil. Having taken some time and read the comments from analysts regarding this quarter's results and, seemingly more important, any view on Q2 in the second half of this year, I'm reminded of the fairy tale of Goldilocks and the three bears, where Goldilocks was on a quest to find the perfect temperature for her newfound gruel and comfortable sleeping quarters. Everything was too hot or too cold, too soft or too hot. It seems that every forecast is either too aggressive and thusly unbelievable, or too conservative and thusly unbearable. I shall attempt to share a forecast when I hope not to share the same fate as Goldilocks being discovered by a family of hungry bears. There are three macro indicators that we need to see for the continuation of improvement to more normalized earnings. The first of these conditions is our North American market. We need to see an improvement in the massive destocking that we've seen in the fourth and going into the first quarter. This is not to say that we need to return to last year's build rate of 1.7 million homes, but rather just a stabilization to the present level of housing starts. While new home starts have dropped 25%, our demand has dropped much more as builders work through their supply of building materials. It is our hope that we will see a return to demand consistent with today's numbers and housing starts. I believe that our spray foam business has moved through its inventory and our OSB business is quite close as orders are now starting to recover. Some building materials used in commercial buildings and warehouses, I think, will take as long as the rest of Q2 to work through its remaining inventory. We will see an improvement in North American demand when we work through our inventory and another step-up when we see a recovery in the number of home starts returning to last year's numbers. We are seeing signs that much of our MDI that goes into the construction market is modestly improving, and inventory levels are stabilizing. The second macro indicator we're following is European energy. As we look to our European businesses, we continue to see the impact and headwinds of higher energy costs. While we are seeing lower natural gas prices than any time in the last two years, they're still six times higher than in North America. These higher prices are also taking a toll on consumer spending and confidence. Europe has been enjoying low energy costs due to unusual weather conditions and slower economic activities. Europe's overreliance on a fundamentally unreliable energy source, while also paying for reliable backup energy production, is rendering the region uncompetitive on the global economic stage. I am concerned when I see forward electricity prices in France for this upcoming winter at near-record prices that we are not improving a system that is simply not working. While we are all in hopes of lower energy costs, this is hardly a solution. We will continue to cut costs and do whatever we can to offset these higher costs. At the same time, we'll focus on those markets in Europe that will prosper, such as aerospace, energy conservation insulation, lightweighting, adhesion, and the automotive industry. Finally, the third macro indicator is the Chinese economy. We continue to see improvements in demand as this massive economy reemerges from the COVID lockdown. Having visited some of our sites in China this past week, I have a renewed sense of optimism that this recovery will continue and should lead to higher prices and margins. In short, we're seeing demand improve across a number of our business groups. This will obviously improve as inventory levels return to better match day-to-day demand. We are maintaining our market share, lowering our costs, pushing for higher prices where we can, and looking for ways to create faster shareholder value. We remain optimistic that this recovery continues, while also preserving our investment-grade balance sheet and continuing to reduce costs should this recovery prove to be transitory. These steps will allow us to take full advantage of improving markets as they happen. With that, Maria, I'll turn the time back over to you, and let's start the question-and-answer session.

Our first question comes from Mike Harrison with Seaport Research Partners. Please go ahead with your question.

Hi, good morning. Peter, I was wondering if you could maybe give us some thoughts on how you expect the second half to unfold. Obviously, you've given us your Q2 outlook that includes still a lot of destocking. But as that destocking subsides, it seems like we could see a pretty substantial step-up in EBITDA in Q3. Maybe talk about some of the puts and takes that you're seeing in the second half. Thank you.

Thank you, Mike. As we look towards the second half, I do not anticipate that we will still be in a destocking phase. While that doesn't mean everything will be fully destocked by July 1, I believe we will have made significant progress. My primary concern is our U.S. MDI market, which is primarily directed at construction. I see this divided into three parts: 40% goes to our spray foam business, Huntsman Building Solutions, which I believe has mostly depleted its inventory. Another 30% is used in composite wood production, which I see normalizing quickly, with both pricing and order volumes stabilizing, indicating positive signs. The remaining 30% is directed towards composite insulation panels for various applications, which may take about another month to normalize. Overall, I think that by the end of this quarter, regarding the areas impacted by destocking, mainly North American MDI, we are nearing completion of that process. Moreover, I don't expect further impacts from lockdowns in China or the typical slowdown during the Chinese New Year, which has affected our Q1 numbers. After recently visiting China and engaging with our sales and management teams there, I've noted a sense of optimism. While I don't expect a complete recovery in the immediate quarter, I do foresee gradual improvements as the year progresses, which should contribute positively to the second half. Regarding Advanced Materials and Performance Products, I believe the inventory levels related to destocking in those areas are largely managed. Any remaining issues are more frequently tied to price competition and overall demand. In Performance Products specifically, our margins per pound have remained stable over the past year, but we have faced challenges with overall demand and volume. As this volume rebounds, profitability should follow suit, likely in the second half. We're currently observing flat demand from Q1 to Q2 with some pricing pressure in various products. As we move forward, I think destocking will become less of a concern, and hopefully, raw materials will stabilize. We are closely monitoring the situation in Europe. However, I want to emphasize the importance of not losing sight of day-to-day fluctuations in the global economy, especially after recent market volatility. We must focus on managing costs, ensuring we have a solid customer base, aligning our production and working capital with market demands, and being ready to capitalize on recovery swiftly when it occurs. Thank you, Mike, and I appreciate your question. There are certainly positive developments for the second half, but I also admit the future remains somewhat uncertain over the next couple of days.

Our next question comes from Michael Sison with Wells Fargo. Please proceed with your question.

This is Abigail on behalf of Mike. I wanted to follow up on your statement regarding managing production to align with lower demand levels. I’d like to know the current MDI operating rates and how low they could be adjusted to accommodate this decrease in demand.

I believe the lower levels of demand were likely more of an issue in the fourth quarter. We are seeing demand improve in the first quarter and heading into the second quarter. We reduced our rates at our Rotterdam facility when demand dropped significantly at the end of last year, with our operating rates at high 60s, around 70% utilization. Now, we're able to sell more than that. Therefore, all our MDI lines will be operating again in Rotterdam, though at a reduced rate, as we work to meet market needs. Overall, we are observing a 70% to 80% utilization rate, which will vary. In the United States and North American market, the rates are significantly higher if we exclude the imports currently coming into North America. However, it's important to consider that, at least on the polymeric side of MDI, it's a global market.

Our next question comes from David Begleiter with Deutsche Bank. Please proceed with your question.

Good morning, Peter, back on to Chinese MDI, how impactful of imports of those products into the U.S. have been? And when do you think the recovery in China could forestall further imports of Chinese MDI into the U.S.?

I estimate that Chinese imports to the U.S. are approximately 20%. This seems to align with the economy's slowdown and subsequent recovery. I do not perceive a significant influx of Chinese products affecting pricing. As China’s demand increases, it is more advantageous for Chinese production to be sold domestically, generating higher profits. I expect that this demand will likely limit exports. However, there will still be some Chinese production entering the U.S., as a major Chinese producer is committed to supplying a specific segment of the market. Nevertheless, I do not believe this will lead to an oversupply that negatively impacts the market.

Our next question comes from Frank Mitsch with Fermium Research. Please proceed with your question.

Thank you very much. Peter, you mentioned that you'll be restarting the lines in Geismar and Rotterdam this quarter. I'm interested in understanding how we anticipate sequential improvement from those plant restarts and what impact that might have had on profitability in the first quarter. Additionally, congratulations on the successful sale of Textile Effects. I'm curious whether there might be opportunities for improving corporate expenses, particularly in terms of rightsizing. Any insights on this would be appreciated. Thank you.

Yes. I'll let Phil provide insights on the overall corporate expenses. To summarize, we are focused on ensuring that those expenses are aligned with our company size. I want to clarify that regarding the restart of MDI lines, we've announced the restart of Rotterdam, but the restart of Geismar is still pending. We haven't made a decision to restart that facility yet, and it will likely take us about two months to fully get that plant operational. Regarding profitability, I want to emphasize that we haven't been limited by the absence of the second line operating in Rotterdam. Our inventory levels and the current production capacity have already surpassed 70% based on our sales forecasts and orders. We need to increase production to meet demand. Thus, we'll be operating both lines in Rotterdam, but this doesn't mean we will run at full capacity and overwhelm the market. I anticipate both lines will operate at around an 80% utilization rate.

On the corporate expenses, Frank, I think we've guided on the last call to about $175 million in 2023. It's actually down from 2022 once you strip out about a $20 million benefit that we got from transactional FX in corporate last year. So, we will be down year-on-year. And as Peter said, we'll continue to focus on that. When we sold Textile Effects, we removed all of the cost, all of the costs that were allocated directly to Textile Effects. So, you'll have a combination of all those costs have gone and corporate costs down year-on-year once you take account of FX. And as Peter said, our focus is on completing our overall cost savings program, our cost optimization program, where we're targeting in total additional $80 million year-on-year of cost savings. Thank you.

Our next question comes from Aleksey Yefremov with KeyBanc Capital Markets. Please proceed with your question.

Thanks, and good morning, everyone. Peter, could you talk about your cost in MDI in Europe, how do they compare currently to your U.S. assets, China assets? And are you exporting any MDI from the U.S. to Europe?

Yes. When we consider the various factors involved, we find that in the U.S., our chlorine and caustic costs are somewhat higher compared to other regions, but we also enjoy lower energy costs in both the U.S. and Europe. Tariffs play a significant role in our operations; for instance, shipping products to China from the U.S. incurs tariffs of 25% to 30%, while in Europe, tariffs are in the single digits. There are both internal and external influences at work here. Overall, the cost differences between Rotterdam and the three regions have reduced significantly, to the extent that they are all within reasonable freight range of each other. Therefore, unless there's a critical shortage of specific tonnage, there is limited advantage in switching from one region to another.

Our next question comes from Arun Viswanathan with RBC Capital Markets. Please proceed with your question.

Thank you for taking my question. To start, regarding the outlook, if you compare the first half to the second half, what do you believe will drive improvements? Is it primarily related to a recovery in China or possibly better trends in construction or automotive sectors? What factors do you expect to contribute to a stronger performance in the second half? Additionally, about destocking, you mentioned it seems more significant in North America. Can you specify if this is related to construction areas or another sector?

Yes, I would say that the destocking is mainly occurring in North America, which accounts for about three quarters of the global destocking. This is particularly evident in building materials related to U.S. housing. While there could be destocking in other regions, Europe has mostly remained in a sluggish state post-COVID. In contrast, the U.S. experienced a housing boom in the last 12 to 24 months, which has since declined, leading to an accumulation of stock. A year to 1.5 years ago, there was a significant shortage of materials like MDI, causing many to purchase excessive quantities and stockpile them. The deinventoring process relates not just to MDI or a specific chemical but encompasses the entire supply chain. In North America, overcoming this destocking could yield improved pricing and volume. However, it's important to consider that the housing market is currently 25% smaller than it was a year ago. As the number of homes being constructed rises from the current 1.2 million to 1.3 million annually back to the previous run rate of 1.6 million to 1.7 million, we can expect increased demand and pricing opportunities. In North America, this will be a multi-step process. As for Europe, we require a broad improvement in GDP along with an energy policy that ensures competitiveness in manufacturing. A recovery in Europe's economy won't significantly benefit us if energy costs remain excessively high compared to the rest of the world. In China, the key question is how quickly they can return to a normalized run rate. I remain optimistic, expecting a steady but gradual improvement by the end of the year.

Our next question comes from Kieran De Brun with Mizuho. Please proceed with your question.

Hi, good morning. You clearly have a very strong capital position now after closing the Textile business. You have cash flow that's being generated in the back half of the year. How should we think about your capital deployment priorities? And how does M&A, if at all, now fit into your story going forward? Thank you.

Yes. Thanks, Kieran, for the question. As we said, a balanced approach to capital in terms of policy, making sure that we maintain our investment grade, which in general, over time, is a net debt leverage ratio of two times. We have said that we would deploy approximately $400 million of cash into share repurchases this year. We feel that, that is competitive from an overall return to shareholders' perspective. But we do have the flexibility and the lever, particularly with the portfolio we have going forward, to deploy cash into M&A. And in order of priority, very clearly for us, Advanced Materials is an area that we would like to seek out bolt-on acquisitions, as we did during the COVID time frame where we added CVC and Gabriel to our portfolio, horizontal plays in Advanced Materials. And we would look to build up that business as bolt-on acquisitions become available and as they become available from a value perspective. In general, you look over the past couple of years, they've been pretty high, and we've therefore stayed on the sidelines. We think going forward, there should be some value to businesses. But balanced approach overall, and we've got a strong enough balance sheet to be able to do both.

Our next question comes from Laurence Alexander with Jefferies. Please proceed with your question.

This is Dan Rizzo on for Laurence. Thanks for taking my question. You mentioned that the push for increased energy efficiency is a tailwind in the U.S. and U.S. construction. I was wondering if it's kind of a similar potential tailwind in China where they're looking to do that as well? Or is it really not material in that region?

I would say that it's not as significant, but it will continue to affect the business, especially regarding electric vehicles. A lot of the infrastructure we provide is related to piping, such as reinsulating hot water and utility lines, which is a major application for us in China. I mentioned the electric vehicle market and lightweighting. Additionally, there are substantial investments in China to develop the power grid system, which will benefit us as we consider our Advanced Materials. Our polyurethane amines are also going into wind energy, and the demand for wind blades is increasing globally. The world is becoming more reliant on China to manufacture wind blades and components for batteries and solar panels. Much of what is required for the various components related to a green transition will continue to grow in China, particularly as the United States maintains restrictive mining and production policies concerning many components used in these end applications. This trend will drive real growth in China for products like wind blades, electric vehicle batteries, solar panels, and more.

Our next question comes from John Roberts with Credit Suisse. Please proceed with your question.

Peter, given your exposure to housing, I would have thought The Three Little Pigs would have been a better fairy tale than Goldilocks.

That's a good point. Especially at insulated house, because the wind wouldn't have been able to get through?

Anyway, Huntsman Business Systems has a lot of small competitors. Are you seeing any signs of distress among your competitors? And are you gaining any share even though the market is down?

I wouldn't say anything is significantly affecting our bottom line. As we progress further downstream, particularly with HBS, which constitutes 40% of the two-thirds of our MDI, we really do not face competition from other MDI producers. Our competition comes from alternative applications, materials, mineral fibers, and smaller companies. We will definitely observe more movement downstream, but at this moment, I don't believe it is impacting the business.

And I would say, John, that for HBS in particular, that market has changed over the last 5 to 10 years. I think it's become a little more consolidated with some of the larger strategic players coming into the market. And you actually see less of the smaller players in that market today. And we think that's good. We think that's good for us, a discipline in the end market in terms of making sure that the appropriate products are sold and are applied correctly.

Our next question comes from Hassan Ahmed with Alembic Global. Please proceed with your question.

A lot of commentary about MDI volumes and the like, and you also touched on the sort of goings on, on the raw material side of things. And I just wanted to get a sense of what you guys are seeing in terms of global MDI cost curves. You guys, obviously, and you touched on that, are relatively cost-advantaged. You had like around 48% EBITDA margins in Q4, around 7% EBITDA margins in the Polyurethanes segment in Q1. So, I would like to imagine that a chunk of your competitors are maybe at breakeven or negative EBITDA margin levels. So, any thoughts around cost curve positioning and how that may actually give the market some buoyancy would be appreciated.

Yes, that's a great question. I won't comment on our competition specifically, not because I have a lawyer present, but because I don't closely follow their profitability per ton. When I consider our three regions—Rotterdam, Geismar, and Couching—I focus on four main components involved in manufacturing a ton of MDI: benzene, natural gas, caustic, and chlorine. Natural gas encompasses several products, including electricity, hydrogen, and steam, rather than just its price. Labor, while you might expect it to be a significant factor, is actually minimal in terms of personnel directly operating MDI plants. Most employment is in downstream and ancillary businesses that support these operations. In terms of competition between regions, I believe labor is relatively immaterial. Similarly, benzene prices are not a major differentiator since it's a fungible global commodity that we source internationally. The costs of benzene across North America, Europe, and China don't vary significantly. However, the largest discrepancies tend to arise from natural gas costs. For instance, during the peak of last year's energy crisis in Europe, the price differential between China and Rotterdam exceeded $1,000 per ton. This situation was temporary, lasting about a quarter, but it represented an unprecedented difference in my experience with MDI, driven exclusively by energy prices between regions. That volatility is the most significant variable we face. I often emphasize this point, but it's worth mentioning that just two or three years ago, Rotterdam was consistently the most cost-effective location for MDI globally, even more so than China or North America. The influence of energy policies—whether effective or not—has dramatically altered operational costs. Less than two years after being one of the lowest-cost facilities globally, Europe now finds itself facing costs over $1,000 per ton above market, which is three times the cost of transporting products from one location to another.

Our next question comes from Jeff Zekauskas with JPMorgan. Please proceed with your question.

Thanks, very much. The cash flows were negative $122 million in the quarter. And part of that was a decrease in your accounts payable by about $50 million sequentially. And usually, accounts payable goes up, I don't know, by $100 million. What are the sources of the changes in payables? Does that have to do with reverse factoring, that is, our financing terms for buyers changing in a higher interest rate environment? And does that affect your cash flow expectations for the year?

Yes. Jeff, it's Phil. Working capital came in as we expected and cash flow, overall, as we guided. The big element that you're talking about there on accounts payable is really related to our insurance premium that we pay in the first quarter every year. So that wasn't a surprise to us. I think we guided that on the previous call overall. As you look forward, we're focused on maintaining our working capital for the appropriate degree given the underlying economic conditions that we have. Obviously, cash flow will be under more pressure with lower EBITDA year-on-year, which is what we've said, but a large focus for us on making sure that we're managing our working capital appropriately. If we look at the cash conversion cycle, number of days, we're in no real different to where we were last year at all. And I think we're managing that in an appropriate manner. Thanks for the question.

Our next question comes from Matthew DeYoe with Bank of America. Please proceed with your question.

Good morning, everyone. Peter, you mentioned briefly that you're expecting some price weakness in ethylene amines and maleic, and these are kind of hard markets for us to get a handle on. So, as we look at price in your comments, I mean, how much are they actually falling? And kind of what level are they now versus perhaps pre-COVID, if pre-COVID is even the right benchmark? If not, maybe what's a better benchmark on price?

Yes. I think the prices from a pre-COVID basis, we certainly have seen prices on both of those products come down since the pre-COVID time period. And I think that as we look at pricing in those areas, it's just become more competitive, mostly among domestic and mostly with derivative demand of those products. Neither one of those have a great deal of competition, a number of competitors, and so forth. So, it's a combination of just what we're seeing on the domestic market and what we're seeing on downstream demand and volume pull-through. But fair to say that the prices of those products are a little bit lower than they were on a pre-COVID basis.

And I think, Matt, we were guiding really to moderate pressure quarter-on-quarter, Q1 to Q2, for those products, which is really demand-driven and underlying market conditions driven overall. But our focus is on what our unit variable margins look like. And obviously, you've got some of the raw materials there, such as butane, such as EDC, caustic dropping as well. So, our focus remains on unit variable margins in what are fairly difficult end market growth conditions.

As we reflect on the performance compared to a year ago in that business, around 150 million in EBITDA on a quarterly basis, it will primarily be influenced by demand. We anticipate a pickup in demand eventually. The margins are present, and the pricing discipline appears to be in place. Overall, demand is the key factor.

Our next question comes from Kevin McCarthy with Vertical Research Partners. Please proceed with your question.

Good morning. Thank you. Peter, within Performance Products, how would you compare and contrast your volume experience for maleic versus amines? And are you seeing any green shoots there, whereby you would expect to be able to take up operating rates sequentially?

Good question, Kevin. Regarding maleic, I think the demand we are currently experiencing will remain relatively stable. The primary application for this demand is in unsaturated polyester resin, which is used in various sectors such as residential, hospitality, and recreational vehicles. I anticipate gradual improvement in these markets over time. From an inventory perspective, I believe the destocking process has already occurred, and these markets will continue to recover slowly. However, I do not expect a rapid rebound.

Our next question is from Angel Castillo with Morgan Stanley. Please proceed with your question.

Just, I guess, a quick follow-up on restructuring. You said you're continuing to progress on European restructuring. Just curious if there's any other, beyond some of the assets that you've shut down and that you moved away from, I guess, anything incremental that you might be looking at that might provide greater opportunity for cost savings from an asset restructuring perspective.

Thanks for the question, Angel. I think we've guided in terms of cash that we were looking to spend on restructuring this year of around $100 million, excluding capital. I think we're still on target for around those sorts of numbers, and you can expect a lot less cash out in 2024 as we basically get those savings into our run rate. Honestly, our focus this year is completing our European restructuring and delivering on some of the savings, which actually came through right at the end of the first quarter. I did say in the earlier remarks, we're focusing on some of our manufacturing costs and making sure that we're appropriately managing those indirect costs as well as we move forward for the remainder of the year.

We have reached the end of our question-and-answer session. This concludes today's conference. Thank you for your participation, and you may disconnect your lines at this time.