Good morning, ladies and gentlemen, and thank you for standing by. Welcome to the Westlake Corporation Third Quarter 2022 Earnings Conference Call. During the presentation, all participants will be in a listen-only mode. After the speakers' remarks, you will be invited to participate in a question-and-answer session. As a reminder, ladies and gentlemen, this conference is being recorded today, November 3rd, 2022. I would now like to turn the call over to today's host, Jeff Holy, Westlake's Vice President and Treasurer. Sir, you may begin.

Thank you. Good morning, everyone, and welcome to the Westlake Corporation conference call to discuss our results for the third quarter of 2022. I'm joined today by Albert Chao, our President and CEO; Steve Bender, our Executive Vice President and Chief Financial Officer; Roger Kearns, our Chief Operating Officer; and other members of our management team. During the call, we will refer to our two reporting segments, performance in essential materials, which we refer to as PEM or materials, and housing and infrastructure products, which we refer to as HIP or products. Today's conference call will begin with Albert, who will open with a few comments regarding Westlake's performance. Steve will then discuss our financial and operating results, after which Albert will add a few concluding comments, and we'll open the call up to questions. Today, management is going to discuss certain topics that will contain forward-looking information that is based on management's beliefs, as well as assumptions made by and information currently available to management. These forward-looking statements suggest predictions or expectations and are, thus, subject to risks or uncertainties. These risks and uncertainties are discussed in Westlake's Form 10-K for the year ended December 31st, 2021, and other SEC filings. We encourage you to learn more about the factors that could lead our actual results to differ by reviewing these SEC filings, which are also available on our Investor Relations website. This morning, Westlake issued a press release with details of our third quarter results. This document is available in the Press Release section of our website at westlake.com. We have also included an earnings presentation which can be found in the Investor Relations section on our website. A replay of today's call will be available beginning today two hours following the conclusion of this call. This replay may be accessed via Westlake's website. Please note that information reported on this call speaks only as of today, November 3rd, 2022, and therefore, you are advised that time-sensitive information may no longer be accurate as of the time of any replay. Finally, I would advise you that this conference call is being broadcast live through an Internet webcast system that can be accessed on our web page at westlake.com. Now I would like to turn the call over to Albert Chao. Albert?

Thank you, Jeff. Good morning, everyone. We appreciate you joining us to discuss our third quarter 2022 results. In this morning's press release, we reported net income for the third quarter of 2022 of $401 million or $3.10 per share on sales of $4 billion. We're all keenly aware of the changes in the global economic conditions with rising interest rates, high energy prices, and decelerating growth across our end markets that have occurred since mid-year 2022. During the third quarter, our earnings were pressured by high energy costs, particularly in Europe, decelerating industrial and construction activity, and inventory destocking by our customers. Westlake has proactively taken steps to navigate these market uncertainties to align our production to meet demand and prioritize higher value products. Our energy and feedstock advantage in North America, where over 85% of our global production capacity is positioned, provided opportunities to reach export markets as domestic construction and building demand for PVC in the U.S. slowed. Thus, our product portfolio with the concentration in North America continues to leverage the benefits from the structural cost advantage in feedstocks, fuel, and power. This cost advantage, combined with the ability to scale our operations to meet market conditions, puts Westlake in a good position to navigate through this challenging economic environment. Slowing demand for PVC and building products tighten markets for chlor-alkali and thus improve the markets for caustic soda. As a leading chlor-alkali producer in North America, pricing strength in caustic soda positions us to capture strong margins in this quarter, partially offsetting lower margins in our other products. Our leading positions in large diameter PVC pipe and fittings continued to perform well in the third quarter and are well situated to benefit from government spending and infrastructure projects for years to come. I would now like to turn our call over to Steve to provide more detail on our financial results for the third quarter of 2022.

Thank you, Albert, and good morning, everyone. This quarter, Westlake reported net income of $401 million or $3.10 per share on sales of $4 billion, which includes a $70 million or $0.42 per share legal charge for a pending litigation matter. Net income for the third quarter of 2022 decreased $206 million from the third quarter of 2021 and $457 million from the third quarter of 2022. As Albert mentioned in his opening remarks, our results were impacted by the slowing economic environment, which began to unfold late in the second quarter and continued throughout the third quarter, along with the $70 million charge to our cost of goods sold from a pending litigation matter. Rising global energy prices, particularly in Europe, which began in early 2022, continued throughout the quarter, while lagging economic growth in Asia and Europe, combined with rising interest rates in the U.S., led to softer demand for many of our products globally and pressured profitability. We proactively lowered operating rates and shifted our sales mix to match market conditions. For example, in Europe, we reduced production for chlorovinyls and epoxy resins to match demand. While in North America, we shifted PVC resin and polyethylene sales to export markets to offset weaker domestic demand, including from our own HIP segment. These efforts allowed us to maintain a solid EBITDA margin of 20%. Moving to our segment performance, our performance in essential materials' segment third quarter 2022 EBITDA decreased $385 million from the third quarter of 2021 to $561 million on sales of $2.7 billion. As compared to the third quarter of 2021, the performance materials portion of this segment increased sales by $101 million to $1.7 billion, largely driven by contributions from our acquisition of Epoxy earlier this year. Meanwhile, essential materials sales increased by $288 million year-over-year to $1 billion, driven by higher sales prices for caustic soda. As compared to the prior year period, our earnings were impacted by lower integrated margins for all of our products in our performance materials business, especially in the PVC export markets, lower production and sales volumes for chlor-alkali and PVC resin, particularly in Europe, higher feedstock fuel and power costs, and higher turnaround activity. These headwinds were partially offset by higher production and sales volumes for polyethylene and higher prices for caustic soda, where the global supply-demand balance tightened as a result of lower operating rates. PEM segment EBITDA of $561 million decreased $601 million from the second quarter of 2022. This sequential decrease in EBITDA is a result of lower integrated margins for our performance materials, particularly PVC, lower production and sales volumes for chlorovinyls and epoxy resins, higher feedstock fuel and power costs and the $70 million litigation. Compared to the previous quarter, we also benefited from higher sales prices for caustic soda and higher production and sales volumes for polyethylene. In our building products business, HIP segment EBITDA for the third quarter of 2022 increased $117 million to $254 million when compared to the third quarter of 2021, which did not include the businesses we acquired from Boral Industries in the fourth quarter of last year. Housing product sales increased $482 million compared to the third quarter of 2021, with pricing gains across all our products, along with contributions from the businesses we acquired in the second half of 2021. Infrastructure product sales were up $30 million from the prior year period, with higher sales pricing across multiple end markets including irrigation, automotive, and medical industries. When compared to the second quarter of 2022, HIP segment EBITDA of $254 million decreased $56 million. Housing product sales of $1 billion decreased $98 million, while infrastructure product sales of $227 million decreased $36 million from the second quarter of 2022. The lower sales and earnings were a result of lower production and sales volumes across all lines in our HIP business. Turning to the balance sheet and cash flows, as of September 30, 2022, cash and cash equivalents were $1.8 billion, and total debt was $4.8 billion. Our consistent focus on cash flow generation and working capital management supports record net cash provided by operating activities for the quarter of $947 million, while capital expenditures for the third quarter of 2022 were $318 million, resulting in solid free cash flow of $629 million. Westlake's balance sheet is well-positioned for all phases of the market cycle, with trailing 12-month net debt-to-EBITDA leverage below 1 times, a staggered long-term fixed-rate debt maturity schedule with no substantial long-term maturities until 2026. In 2022, we renewed our revolving line of credit for five years and expanded it to $1.5 billion, ensuring additional long-term liquidity. Based on our current view of housing demand, construction activities, and pricing, we are reaffirming our guidance for HIP revenue in 2022 to increase by 50% to 60% from 2021, with full-year revenue for 2022 to be between $4.5 billion and $5 billion. Let me provide some guidance for your models. Our utilization of FIFO method accounting provides a benefit in rising cost and a headwind in periods of lowering cost compared to what our results would be reported on a LIFO method. As a result of the lower cost environment in the third quarter of 2022, we had an unfavorable FIFO impact of $26 million compared to what earnings would have been reported on the LIFO method. For the full year of 2022, we expect our effective tax rate to be approximately 23%, interest expense to be approximately $170 million, capital expenditures of approximately $1 billion, and depreciation and amortization expense is expected to be about $1 billion. Now let me turn the call over to Albert to provide some current outlook of the business.

Thank you, Steve. We have significant scale and leading market positions in our products across many geographies and value chains and are very well-positioned to navigate inflation and elevated interest rates, high energy and feedstock costs in Europe, and the impact from existing geopolitical tensions. With approximately 85% of our PEM capacity concentrated in North America, we benefit from globally cost-advantaged feedstocks, fuel, and power costs while our integrated operations provide the flexibility to adjust our position to match demand and optimize our business in a variety of market conditions. In our HIP segment, rapidly rising interest rates have impacted affordability, leading to reductions in new housing starts. Although we are entering the seasonal winter slowdown in construction activity, near-term demand should be bolstered by the currently started yet unfinished housing stock, which is at a recent high. The doubling of mortgage rates over the past six months will likely lead to lower new housing starts as we move through 2023. However, the slowing of new residential housing starts encourages people to invest in and upgrade their current homes, spurring demand for our products for repair and remodeling (R&R) activity, which represents about 50% of our housing products offerings. These factors, combined with the average age of housing stock across the country being 40 years, provide a strong foundation for the repair and remodeling market and new home construction. Furthermore, the historical underbuilding of new homes over the past decade and favorable demographics support attractive long-term fundamentals. The recently passed infrastructure bill will spur new demand for both of our segments, as our PVC resin and pipe and fittings products are well-suited to refurbish America's aging water infrastructure, while our epoxy products are critical in windmill blades for alternative energy production as well as coatings on bridges and other structures. We will also continue to benefit from the integration of the recently acquired businesses and our steady stream of innovative products, expanding our overall market product offerings and providing more opportunities to cross-sell products, improve our operations, generate efficiencies, and increase the vertical integration of our operations. We have a strong balance sheet, ample liquidity, and a long-dated fixed-rate debt balance with no meaningful near-term maturities. The combination of robust cash flow generation capability and an investment-grade-related credit profile enables us to deploy capital in a disciplined manner to grow shareholder value as we advance our sustainable product offerings. We are continuing to innovate to drive value now and into the future. We are committed to increasing the sustainability of our operations and our product offerings and advancing our ESG initiatives. Our product innovation pipeline continues to introduce new and sustainable products as we work towards reducing our carbon intensity and meeting the needs of society, such as lower carbon-based caustic soda and PVC, bio-based solutions for building materials, lower carbon footprint PVC pipe, and our post-consumer recycle-based polyethylene and consumer products using recycled plastic material. Looking ahead to the remainder of the year, given the normal seasonal declines in construction activity in the fourth quarter, volumes and prices reflect this lower demand level, while lower feedstock and energy costs may soften this impact. As we head into 2023, the global macroeconomic environment remains very dynamic. That said, we expect our North American feedstock and fuel advantage to continue while we undertake cost reduction efforts and manage our business to match market conditions. We expect to see a release of working capital in the fourth quarter, and we intend to deploy that capital in a shareholder-friendly manner, including the use of our recently Board-approved $500 million increase in our share repurchase authority. Thank you very much for listening to our third quarter earnings call. I will now turn the call back over to Jeff.

Thank you, Albert. Before we begin taking questions, I would like to remind listeners that our earnings presentation, which provides additional clarity into our results, is available on our website. And a replay of this teleconference will be available two hours after the call has ended. We will provide that information again at the end of the call. Haley, we'll now take questions.

Thank you. We will now begin the question-and-answer session. Our first question comes from Michael Sison from Wells Fargo. Michael, you can go ahead.

Hey, everyone. How are you? My first question is about the momentum in chlorine and caustic pricing. Historically, these prices have shown momentum heading into recessions. Can you discuss the potential for those prices to remain strong as we approach 2023?

Hey Michael, it's Roger Kearns here. Yes, a couple of colors on that. We are certainly seeing momentum on the chlor-alkali side of the business continuing. But as chlorine demand kind of pulls back on the PVC and other derivatives, we'll see production drop a little bit, which is certainly supporting pricing on the caustic side, but we're also still seeing good strength on the merchant chlorine side, I would say, outside of PVC and the other big polymers. So we expect that to continue at least through Q1.

Okay. And then in terms of HIP, your EBIT margin about mid-teens now. When you think about a downturn in 2023 for housing and debatable to what degree, where do you think margins will settle in for that segment given that it's been above 20% for the last couple of quarters and sort of back to the mid-teens?

So Mike, it's Steve. When you think about the performance that we've had in the preceding three quarters, we delivered a 20% margin in the most recent quarter for HIP, and we had north of that in the previous two quarters. And so I think you see that business has got significant scalability to it. And we think, though, while we see the headwinds certainly in housing, we think that business continues to perform very well given the headwinds and the affordability we see. So that business we continue to see performing very well.

Great. Thank you.

You’re welcome.

Good morning. Albert and Steve, this is Bhavesh for John. Within your HIP segment, can you provide some color on where the inventory levels are at your and your customers' levels right now? And then within that, is there a difference between your PVC and non-PVC-based products?

So from an inventory level, you've seen some of the destocking that's occurred. And as Albert noted in his comments, certainly, we're entering a slower construction season over the course of the fourth quarter. And typically, the fourth quarter and the first quarter of the year are seasonally slower in the construction season because of weather. And so you would imagine that as we think about the inventory levels for our business and for our customer levels, they have certainly destocked because of those seasonal concerns and certainly because of some of the headwinds we've seen in housing have also destocked accordingly. But as we look forward, we continue to see opportunities to build to customer demand levels for those inventory levels.

Got it. And then on PVC, we have seen some notable price declines over the past three to four months. When do you think PVC spot and contract prices stabilize? And what do you think needs to happen for that to happen?

Bhavesh, it's Roger. Yes, we've seen PVC prices dropping certainly quite significantly in the export markets, certainly more than the domestic market. I think we have two things going on. We have the normal seasonal slowdown that we would always see as we come to the end of the year, but we've also had, I'd say, a mentality shift of coming out of COVID. For almost two years, PVC has been extremely tight. You couldn't get enough. People were ordering often and early, I would say. And there's a bit of a shift now to say, okay, supply is available. And so the inventories are running down because the buyers know that they are able to get it now when they want it. So I think that shift a little bit to whipsaw of inventory reduction in addition to the normal seasonal slowdowns. And the real driver on this though is China. China demand is still quite slow. We've seen China actually increase their exports quite significantly in the second quarter, but we've seen those reduced in the third quarter. And in fact, we're going into the fourth quarter now with China exports being similar to what I would say is '21 because actually the carbide producers that are nonintegrated are underwater today, and the integrated carbide producers are basically flat. And so it's just becoming an issue where China's demand is slow, but we see their production slowing to match.

Thank you. Good morning, everyone. I wanted to follow up on the PVC price question. There's a notable difference between domestic contract and export prices. So the question is whether customers are actually transacting at the current domestic contract price or if they are receiving significant discounts. Is this more about price discovery, or are you genuinely achieving a substantial premium in the domestic market? If so, do you believe this premium can be maintained for a while?

Yes. This is Albert. As Roger mentioned, the main decrease in export prices is due to China, which is both the largest producer and consumer of PVC globally. However, the lockdown and impending slowdown, particularly in the construction sector, have sharply reduced inventories. Additionally, many developed countries do not accept carbide-based PVC as a raw material, which limits our impact on the North American market. Furthermore, the downstream finished products of PVC in the U.S. are primarily construction materials, with minimal exports of finished products to both the U.S. and Asia. Although export market prices are low, we do not anticipate a significant effect on domestic market prices, even though there is some impact. This situation does affect our export pricing; therefore, when U.S. companies export PVC, we have to align our export PVC prices with those influenced by Chinese PVC exports.

And if we look at recent changes in the energy market, European energy prices are much lower. Recently, there's some more specifics around Germany capping industrial power prices as well, and caustic soda prices are up meaningfully. Could you maybe give some sense of chlorovinyls profitability would actually improve from the fourth quarter given all these dynamics? Or do you think it's still a challenging trend and EBITDA still flat to down in Q4?

Yes. Alex, it's Roger. Q3 was extremely difficult in Europe with the spike in both natural gas and energy pricing. And so with what we're seeing today, especially if that was to hold, we would see Europe being significantly better in Q4 for chlorovinyls.

Yes, good morning. With market conditions slowing, how will you manage the company differently? For example, on the PEM segment, I think you referenced turning down some operating rates in chlor-alkali and vinyls and epoxy in Europe. Do you think you'll need to throttle back operating rates in the U.S. or accelerate maintenance activity, for example? That would be my first question.

Yes. So it's Roger again, sorry. I think if I look at where we were sitting here in Q4, we had, in Q3, quite significant turnaround activity. And in Q4, today, in our epoxy business, we've got several of our plants down for turnaround. So as demand has pulled off fortuitously, we've had our turnarounds planned at this time. So we're able to get a fair amount of maintenance done here in Q3 and in Q4 in preparation for that. I think the other piece we see both in HIP segment and in the Epoxy business is we continue to work on creating synergies from the acquisitions, and we'll be accelerating that in the coming quarters as business slows down just a little bit, and we'll be able to come back and bring all of our processes, manufacturing delivery into a much more organized way as opposed to the pace it's been in the last 18 months.

Okay. We don’t have a lot of historical data for your HIP segment since you restructured the company and there has been acquisition activity. How would you describe the typical seasonality in the fourth quarter compared to the third quarter? What is the usual expected decline in sales? Considering the cyclical pressures, how do you think this year will stack up against a typical year?

Yes. So Kevin, from a seasonality perspective, we've started seeing some of that come in, obviously, in late third quarter, and part of that was weather-driven. Part of that was also because of the affordability issues. And so as you get into the fourth quarter, you do see some of that seasonality come into play. And so the slowness that we typically see has started to come into the period of time that we're in today, being mid-November at this stage. And so as we continue into the first quarter, you will see that restart of construction activity begin to pick up in mid-first quarter of ’23. And so we've seen that pull back already in the housing business in the third quarter. You won't see a proportional drop in the fourth quarter as you've seen in the third quarter because of the strong headwinds. You will continue to see, I think, some restocking as we get into the first quarter as that seasonal construction activity begins to reestablish itself.

Yes. Hi, thanks for taking my question. I just wanted to follow-up on the European energy response earlier. So just understanding it's smaller for you, but just wondering, is there any way to quantify the added sequential impact that you saw between 2Q and 3Q, and how that impacted your PEM segment?

Well, this is Albert. As Roger said, in the third quarter, the high energy cost both for natural gas and electricity, definitely impacted the profitability and the demand for European products. And even though right now, we are seeing a drop in energy price, we don't know how long that will continue. And some of the government incentives are not quantified yet, and it's still going through the political approval process within the EU. So we think that will be a long-term impact, and people talk about 2023, how much natural gas storage Europe can build up. And depending on, of course, nobody knows the geopolitical dynamics going on in Europe. So we think the European going forward will still have energy crisis to face until the geopolitical issue is resolved.

Okay, thanks. Can you share your operating rates in the third quarter for North America compared to Europe? Will they decrease further in the fourth quarter from where we are today?

Well, North American operating rates are commensurate with the industry operating rates. And for Europe, probably commercial does not have a well-published index of European industry rates, but it has come down substantially, as Roger has alluded to.

Hey, good morning. If I could follow-up on the turnaround question that was asked earlier. Just curious as to what the net impact was of some of the outages in the third quarter and how we can compare and contrast that with what your planned outages are in the fourth quarter.

So Frank, a lot of those expenses related to the turnarounds get capitalized and then get expensed over typically a period of five years. And so the impact that Roger referred to is certainly impacting production, but the financial impact gets capitalized, and then we'll expense that over a typically five-year period. So you'll see that increase in other assets on the balance sheet, and then that gets amortized ratably over a five-year period of time.

So we shouldn't expect a significant change in profitability from the third quarter to the fourth quarter solely due to the planned and unplanned outages you experienced, correct?

That's right. It will be relatively small impact driven by the turnaround impact.

Thank you. And given the fact that the portfolio has materially changed over the recent past, I'm curious how you think about the mythical trough EBITDA levels or the earnings power of Westlake in a typical trough environment. How would you answer that question?

So as you consider the changes in the portfolio, Frank, you're correct. When you examine the margin performance of the HIP business, it's evident that it is highly scalable. In the third quarter, we achieved a 20% EBITDA margin, demonstrating that this business is less capital-intensive and can scale effectively regardless of the economic cycle. You have the flexibility to increase or decrease operational lines, which enhances scalability. On the chemical side, there are certain operational rates where fixed costs accumulate significantly as you reach those rates. This results in greater scalability for the building products segment. The actions we took in the third quarter clearly illustrate this, leading to a robust 20% EBITDA margin in the HIP segment.

Yes, Frank, this is Albert also. Many of our products are really essential. You see during the pandemic that our production and demand for our products increased. And we believe that our demand is still pretty strong other than building material, which is impacted by new construction, but we have repair and remodeling, which is 50% of our products in the building materials market. That should be still doing quite well during the downturn. So we believe that near-term, yes, there will be fluctuations. But really on a longer-term basis, the demand for our products is still very strong, and we have the cost of feedstock energy cost advantage around the world, supply from North American production. And we are leading producers in many of the products. And we believe the housing market will return for new housing material even though the discussion of a slowdown in new home construction, we're talking about high single-digit decline, so a subsidiary decline. And so we think that the near term, it will be fluctuations. But on a longer-term basis, we should be in very strong positions.

Okay, our next question comes from the line of John Roberts.

Good morning. This is Matt Skowronski on for John. Are there some new polyethylene capacity coming online in North America? Can you talk about how you envision the supply-demand for the next few quarters?

Yes, it's Roger. I mean I think we've got one plant that's kind of in the process of starting up now. The others have been delayed a bit in the second quarter. But I think the market has actually priced this in. This has been seen and expected for quite some time coming up. So I think over the next three quarters, we'll see a bit more supply come in. But global demand, and certainly with the U.S. advantage, most of that will be exported.

Yes. John, I think those new capacities are high density and really low. They're more commodity grades. And for Westlake, 50% of our polyethylene is LDPE, and a big part of the specialty LDPE. And on the low side, we also have a portion of that as being specialty near low. So it has some impact, but we are not directly confronting those new capacities.

Understood. Thank you. And then can you comment on your M&A pipeline and if you would consider a more tidal and the smaller bolt-ons that you've been doing?

So we'll continue, as you would guess, always, Matt, to look at opportunities that are out there. And so it is always a function of looking at the right opportunity and the right value for that opportunity throughout any stage of the business cycle. So as you can see, we still have a very strong balance sheet and generated very strong liquidity. And I think you saw in our prepared remarks that we'll look for ways to deploy that in value-added ways. There are a variety of ways to do that. And so certainly, if we see good opportunities that make compellingly good returns, we have the firepower to be able to do that and keep our balance sheet really in a strong position even after having done so.

Thank you.

Good morning, Albert and Steve.

Good morning, Hassan.

Just wanted to take another crack at the trough earnings power question. I mean, look, as I take a look at Q3, it just seemed like the business environment was the worst of everything, right? I mean ridiculously high European gas prices, destocking, China COVID lockdowns, PVC margins sort of breakeven to negative across the board. So even in that environment, obviously, you guys generated $800 million in quarterly EBITDA? And obviously, not to mention epoxy margins. Some competitors of yours calling them even below trough. So my question is, is this $800 million a good sort of guesstimate of what trough quarterly sort of EBITDA should be? So call it, $3.2 billion annualized?

And Hassan, good question. And I think you can see there is still some forecast of showing exit prices certainly in, say, PVC to trend lower. So I wouldn't want to suggest that the average price we saw in, say, vinyls is reflective of that. Certainly, you've seen strength really is, as both Albert and Roger commented on the caustic side of the business. And as Roger also noted, I think the market has factored in the new polyethylene additions that we see in the marketplace in their forecast for polyethylene prices. But I would say that with the destocking levels that we've seen both in polyethylene and PVC and other products that we will continue to see, I think, opportunities to continue to grow the business. But I would say there is still risk in pricing that you see in some of the forecasts that are out there.

I appreciate that insight. As a follow-up, we are seeing pricing strength in both chlorine and caustic, and the industry has effectively focused on value rather than volume, which seems to be a consistent approach. My question is about chlorine in a recessionary environment; I'm curious about your confidence that the current pricing for caustic will hold up. Given that chlorine is a local market and caustic is not, what gives you reassurance that caustic pricing will remain stable despite potential challenges from trade flows in the market?

Yes, Hassan, it's Roger. I think you're partly correct about chlorine. Typically, chlorine is exported along with PVC. This practice is likely to persist due to the U.S. stance on feedstocks and raw materials compared to the global market. Therefore, exporting chlorine should remain feasible. However, as caustic production slows and if producers reduce output, it will lead to lower caustic volumes available, which will keep costs tight. We observe these fluctuations in each cycle. For instance, in 2021, caustic prices lagged behind those of chlorine by about six months; it tends to join the market later and remain longer. We anticipate that pattern will repeat this time.

Thank you. Good morning. Albert, could you talk about your epoxy profitability, how it performed in Q3, and what you anticipate for Q4?

Yes, it's Roger. Regarding epoxy, we are observing three main regions. China is facing significant challenges, with demand dropping sharply and exports declining. In Europe, demand has improved, but high energy costs have impacted profitability. The U.S. remains the positive area with stronger demand and lower costs. Overall, we hope to see a rebound in China, which would be crucial for our wind energy business. Currently, the U.S. market looks stable, and as energy prices decrease in Europe, this will positively impact our European epoxy business.

Thank you. And Steve, just on buybacks, even your cash balance, how much cash do you want to carry going forward? And should we expect some higher levels of buyback activity even in Q4?

David, the minimum cash balance we aim to maintain is between $500 million and $1 billion. Considering our current position in the cycle, we anticipate a significant inflow of working capital in Q4 and Q1. With our ending cash and cash equivalents at $1.8 billion, along with a strong working capital influx expected in the fourth quarter, we have considerable resources available to deploy in ways that benefit our shareholders. Therefore, I am confident in our capacity to repurchase shares or invest in other opportunities. We have ample capital ready to be utilized when the right opportunities arise.

Hi, this is Alyssa on for Angel. Thanks for taking my question. So you reaffirmed your 2022 HIP revenue guidance of $4.5 billion to $5 billion. Do you mind breaking that down for us and maybe speak to your expectations on volume versus pricing?

Yes. So certainly, when you see that we've seen some pullback in some of the pricing in PVC as an example, we set certain seasonal prices with many of our distributors. So there is an opportunity to see some margin growth. But certainly, given a seasonal slowdown in the winter months, certainly, volumes will continue to slow in the new starts. But certainly, remember half of our business is in the repair and remodeling business. And so certainly, typically, that activity is much more resilient in periods when we see a slowdown in new start activity. So I do expect that we'll continue to see strength in the R&R side of the house.

Got it. That's very helpful. And as noted earlier, you guys were able to maintain that 20% margin in Q3. Is there something happening under the hood there that we should be mindful of that's going to allow you to sustain this level of profitability?

I believe the point we discussed is that it involves a combination of product mix and the capacity to adjust production based on demand levels. This business model is highly scalable. As we experience fluctuations in demand, we can adapt our operations accordingly. It is significantly more scalable compared to some of our other businesses with higher fixed costs, such as those in the chemical sector. Therefore, as demand changes, we can modify our production to align with that demand.

Good morning. So obviously, a lot of puts and takes, and we're still early in the quarter. Let's see if I can get something out on this one, I guess. But obviously, you mentioned lower exit rates on vinyls prices. Epoxy still pretty weak, but we have lower gas prices, lower ethylene cash costs, higher chlor-alkali levels. So when you sit back and take a look at the bridge for the next quarter, I mean, do you think PEM can hold in here? Or do you expect the exit rate on vinyls and volumes to carry you lower quarter-over-quarter?

We are likely to see some declines in PVC and polyethylene as we manage through inventory levels in a seasonally slow period. The third quarter reflected an average during this declining phase. As a result, we are exiting at a time when the average prices for some of these products will be lower. Yes. When considering the industry's polyethylene exports, they generally range from the high 30s to 40s percent, while our exports typically fall below that. In the third quarter, we observed a higher level of exports for both polyethylene and PVC. This indicates a product shift in the third quarter with a greater proportion of export activity compared to our usual rate.

Hey, good morning, Albert and Steve.

Good morning, Matthew.

You mentioned that you had reduced operating rates to match up with demand. Does that apply to PE? And the reason I ask is one of your global PE competitors is talking about operating in the mid-90% range, and I'm wondering if you have any comments on that?

Yes. And so that was a comment related to the overall PEM segment of the business. And so certainly, when you think about some of the performance-related products that we produce, especially in polyethylene, where you see higher value-added, we certainly will again adjust market demand. And market demand in that more specialty end was stronger in the quarter. I don't know, Roger, if you'd like to add.

Yes. Maybe I'd say in polyethylene, you noticed even in our press release, we actually said higher volumes in polyethylene. So our specialties have remained quite strong. And so the demand is good on that side of the business, and that's about half of our business at least.

Great. Thanks for the color. And then is there still interest in your green caustic product in this environment? And how are pricing premiums for that product trending?

Yes. So we introduced kind of a lower carbon caustic in Europe almost, I guess, a year now, and it's continued to grow. We're seeing demand in Europe. We've since then introduced the lower carbon PVC, and then most recently, a bio-attributed ethylene PVC, which actually has about 90% lower CO2. So we're continuing to push down that path of creating products that are less CO2-intensive. I think it's quite important for our industry. Premiums are related really to our cost to create those, and we're continuing to cover any extra costs that we have on those.

Perfect. At this time, our Q&A session has now ended. Are there any closing remarks?

Thank you again for participating in today's call. We hope you'll join us again for our next conference call to discuss our fourth quarter and full-year results.

Thank you, everyone, for participating in today's Westlake Corporation third quarter earnings conference call. A replay will be available beginning two hours after the call has ended. The replay can be accessed via Westlake's website. Thank you and have a great afternoon.