Good morning, everyone. Sorry for the technical difficulties. Welcome to Ashland's Fourth Quarter Fiscal Year 2021 Earnings Call and Webcast. My name is Seth Mrozek, Director, Ashland Investor Relations. Joining me on the call today are Guillermo Novo, Ashland's Chairman and Chief Executive Officer; and Kevin Willis, Senior Vice President and Chief Financial Officer. We released preliminary results for the quarter ended September 30, 2021, at approximately 5:00 p.m. Eastern Time yesterday, November 9. The news release issued last night was furnished to the SEC in a Form 8-K. During this morning's call, we will reference slides that are currently being webcast on our website, ashland.com, under the Investor Relations section. We encourage you to follow along during this call. Please turn to Slide 2. As a reminder, during today's call, we will be making forward-looking statements on several matters, including our outlook for fiscal year 2022. These forward-looking statements are subject to risks and uncertainties that could cause future results or events to differ materially from today's projections. We believe any such statements are based on reasonable assumptions but cannot assure that such expectations will be achieved. Please refer to Slide 2 of the presentation for a more complete explanation of those risks and uncertainties and the limits applicable to forward-looking statements. You can also review our most recent Form 10-K under Item 1A for a comprehensive discussion of the risk factors impacting our business. Please also note that we will be referring to certain actual and projected financial metrics of Ashland on an adjusted basis, which are non-GAAP financial measures. We will refer to these measures as adjusted and present them in order to supplement your understanding and assessment of the financial performance of our ongoing business. Non-GAAP measures should not be considered a substitute for or superior…

Thank you, Seth, and good morning to everyone. Thanks for your interest in Ashland and your participation this morning. Before I discuss results for the quarter, please let me first acknowledge the Performance Adhesives team. As we announced during the quarter, on August 31, we signed a definitive agreement to sell the Performance Adhesives business to Arkema for $1.65 billion. Our teams are working very well together in planning the sale and future integration. At this time, we expect the transaction to close during the March quarter of 2022. Net proceeds, cash from the sale after tax and transaction-related fees are expected to be in the range of $1.2 billion to $1.3 billion. Given that the Performance Adhesives business is now reported as discontinued operations for Ashland accounting purposes, this is the final quarter in which I plan to specifically address the results of the business. I would like to take this opportunity to recognize their performance. While the Ashland and Arkema teams are working diligently on the transaction closing process, Performance Adhesives continues to execute on their winning strategy. The business performed very well during the quarter with sales up 31% compared to prior year. Adjusted EBITDA also grew by 10% with strong demand and enhanced pricing for its value-added adhesive applications being partially offset by continued raw material and cost inflation. I'd like again to congratulate the Performance Adhesives team for building an excellent business. Adhesives has been an important part of the Ashland portfolio and story. And we'd like to thank the team for the contributions made over the decades. We wish the team great success as they continue their strategy as a future part of Arkema. Please turn to Slide 6, turning to Ashland's results in the fiscal fourth quarter. As you will hear during the…

Thank you, Guillermo, and good morning, everyone. Please turn to Slide 8. Before I begin, I'd like to remind everyone that the results of the Performance Adhesives business are now reported as discontinued operations for Ashland and will not be included in my discussion of adjusted results from continuing operations. However, as a reminder, even though we still own the business and expect to until sometime in the March quarter, stranded costs related to adhesives are included in our corporate unallocated expenses. Total Ashland sales in the quarter were $591 million, up 12% versus prior year. Favorable currency contributed 1% growth during the quarter. Gross margin for the quarter declined modestly to 33.2%, primarily reflecting higher raw material, freight and energy costs. Excluding key items, SG&A, R&D and intangible amortization costs increased modestly to $113 million in the quarter, primarily reflecting the addition of the Schülke & Mayr business. In total, Ashland's adjusted EBITDA for the quarter was $149 million, a 14% increase compared to the prior year adjusted EBITDA of $131 million. Ashland's adjusted EBITDA margin for the quarter was 25.2%, a 40 basis point improvement compared to the prior year, again reflecting the items discussed above. Notably, all four of Ashland's operating segments reported adjusted EBITDA margin above 25%. Adjusted EPS, excluding acquisition amortization for the quarter, was $1.22 per share, up 18% from the prior year. Now let's review the results of each of our four operating segments. Please turn to Slide 9. I'll begin with Life Sciences. The team executed well in the face of continued supply chain disruptions and raw material inflation. Sales were $189 million, up 5% from the prior year quarter. Currency favorably impacted sales by 1%. Demand for pharma and nutrition ingredients was healthy and was only partially offset by lower nutraceutical…

Thanks, Kevin. Please turn to Slide 21. As Kevin indicated, given all the challenges and changes, we have set a clear baseline for 2021 to build our outlook. As we look to 2022 -- as we look at 2022 macro trend, we see both tailwinds and headwinds we need to address. Demand remains strong across most of our end markets. Given our increased exposure to consumer-driven segments, we see the strength of the consumer as a positive for us in the coming year. The normalization of social and economic activity as we move past COVID should begin to have a positive impact on demand in key segments. For pharma, we should start to see improved funding for therapeutic treatments for a broad range of infectious diseases, which have been negatively impacted by lower government and the donor funding as they focus resources on the COVID pandemic. Equally, the opening of social activities will likely change consumer activities and behaviors, which should have a positive impact on demand in several personal care segments. Pricing environment remains positive, given high demand, supply chain challenges and long-term tight supply -- industry supply and demand balances in key technologies, such as HEC. We acknowledge that 2022 will come with its share of challenges and headwinds. We expect supply chain and logistics challenges to persist at least through our fiscal third quarter. Broad-based cost inflation will continue to be a challenge to everyone. For Ashland, we see several cost inflation drivers. We see cost increases in cellulose driven by poor cotton crop, supply logistics challenges as well as high demand for cellulose across all categories. We continue to see cost escalations in butane driven by higher natural gas costs. This impacts our BDO costs. And in general, we expect to continue to see broad-based inflation…

. And our first question comes from John McNulty from BMO Capital Markets.

Maybe a couple of them. Firstly, just kind of getting some of the noise of freight out of the equation, I guess, can you help us to understand what the impact of freight, either availability and/or costs, were on the quarter? And I guess, how are you going to manage through that as you kind of look to 2022? Have you kind of just either locked up more freight availability? Or I guess, what prevents that from capping some of the growth that you could otherwise see in 2022?

Let me comment on when we look at the whole supply chain logistics side, just what's impacting us and then I'll pass it to Kevin to talk maybe about the cost and freight. But our biggest issue right now is if you look at, let's say, in simplistic terms, 75% of our sales are local. We have inventory around the world and it's just local shipping and 25% is indent. So the biggest issue that we have is more the on-time scheduling of ships. And that's really where we see a lot of this end of the month, end of the quarter surprises of did the ship arrive on time? Did we load it? So the availability is the biggest issue for us. Most of our shipments are coming out of the U.S. and Europe to the rest of the world. We're not in the dynamic that other companies have of shipping in from Asia into the U.S. So we have availability. It's the on-time side that is the biggest impact. On the land transportation, I would say we have some issues in Europe, but the bigger issues are here in the U.S. on truck availability, drivers, those kinds of things. But frankly speaking, that's going to be less and less of an issue as the adhesive business leaves the portfolio. Ocean freight is one of the biggest issues for us. But Kevin, do you want to comment on the cost?

Yes. Q4 of this year versus last, freight and logistics costs were up, call it, mid-single-digit millions of dollars. And '22 versus '21 full year, we expect it to be $15 million or so of inflation based on the environment that we're in today. So not insignificant, but you have to get it through pricing.

Got it. And then maybe just as a follow-up, can you speak to -- so you do have a number of headwinds on the freight side. You also spoke to the BDO impact, in particular on the Life Sciences segment but even a little bit in personal care. I guess, can you speak to the ability to get the pricing through that you need? And when you think about 2022, what level of price do you need when you think about the -- at least the consumer-related portions of the business?

Well, I mean, we're moving on pricing across the board. I would classify this as a much broader general inflation and it's hitting everybody. It's not just us, so we're able to pass that on. I think the pricing dynamics, the HEC network, the industry is tight right now and demand is very strong. So it's favorable, as I said, to pricing. So the growth will come more from pricing than from volume in that part of the portfolio until new capacity comes on stream. So it's favorable dynamics. The issue is more that whole timing. This is very different than when we talk about adhesives, which is much more volatile in terms of the petrochemical side. We -- our exposure right now, if you look at the 3 buckets I mentioned, cellulose is big because we have a big cellulose franchise. That tends to be very, very stable. I mean, what we're seeing right now, we probably haven't seen in 10 years. So it's a little bit more unprecedented. I don't think it's -- we're already seeing some signs of softening towards the back end of the year, but we'll be tracking that. Usually, we can pass on pricing. We're able to hold on to that for much longer. The butane dynamic is a normal dynamic on our BDO part of the portfolio. And it's really driven right now by energy. And the rest, we don't have any major, large raw material. It's -- I look at the list of our procured, it's $1 million up here, $1 million in there. It's a lot of little things and it's just a holistic increase, which is impacting everyone. Therefore, I think we have favorable pricing environment in terms of the entire industry moving on price.

Got it. No, that's helpful. Maybe if I can sneak one last one in, you're going to -- with the sale of the adhesive business, you're going to have what is arguably a mountain of cash or flexibility. And that's only increased some of the improvements you made on the cash conversion. So I guess, can you speak to the M&A opportunities that you see out there and the potential pipeline that you're looking at in terms of ability to deploy some of that capital?

So John, I'm going to have to leave you with a little bit of a cliffhanger so that you have to come in and see our Investor Day on Friday. But yes, to answer your question, I mean, we obviously have the resources. And it's not just from the sale. I think you've seen the strong cash flow generation that the core business has, our issue now is going to be to refocus on growth. And we'll talk a little bit more about that in terms of the Investor Day. You've seen the attention we've had of free cash flow conversion. We're fine-tuning that even more. We really want to split out what is the cash flow for maintaining our business, just the normal operations and refocus so that we're investing more of our resources on growth, be it organic growth, and we have some specific areas that we want to accelerate growth because we see we're very well positioned and demand is very good. There's M&A, bolt-on M&A opportunities. And we'll talk about that at the Investor Day and where we're focusing on. And as you've seen, we are also rewarding our shareholders. And I think, fortunately, we're in a position that we can do all of the above. And we'll remain balanced in our approach.

And our next question comes from Chris Parkinson from Mizuho.

So Guillermo, when you put aside all of the noise, the raw material, P&L pressures in fiscal year '21 and you assess your current ingredients portfolio, specialty materials, et cetera, et cetera, where does it ultimately stand in terms of growth, pricing power and margin potential versus your original assessment as CEO?

So I'm extremely excited. That's going to be the theme of our call on Friday. I mean, we have now -- and I think one of the things we want to do is takeaway, especially on the growth side, some of the history and noise. I mean, this is a company that has gone through a massive transformation over the last decade and longer. It's not just reducing the size and noise, it's -- the portfolio itself has changed a lot. So when I hear of things, "Well, Ashland in the past, XYZ," that refers to a distribution business, to a water business, to a composites business, to a -- it's just a lot of things. And you'll see on Friday, we'll try to give some transparency of what's happened to the core business. Our business right now is a 10-year-old portfolio. It's not a 100-year-old like the old Ashland. It is very different. And it's, I think, a very high quality. It's a coherent -- strategically coherent additives and ingredients portfolio with leadership positions in some high-quality markets, personal care, pharma and architectural coatings, most of which 70-plus percent, 75%, is consumer-driven in terms of the demand profile that we have, so very, very healthy. And the majority of the rest is really integrated on how we can leverage our technologies and capabilities for scale and profitability. So on growth, we still stay focused on our objective of growing 200 to 400 basis points over market. And it'll be -- these are steady market growth with very good macro trends supporting the change, and we'll talk about that. So that's the type of growth that we're still committed to in terms of our underlying core businesses. In terms of margin improvement, we still see opportunities to improve margins. I mean, you've seen the top-down actions we've taken. We continue to improve now through better management. And that includes productivity, it includes mix improvements that we're doing. And we continue to edge up some of our margins. And I would say as we look at growth that we get greater scale, that we can bring in new businesses through innovation or through M&A. Those tend to be higher margin than what we have today. We're not going to invest in lower-margin businesses. So all those things will tend to push our margins. So our long term, and I don't want to steal my thunder for Friday, but we really want to start continue pushing on that road to greater than 30% EBITDA margins to the future.

Great. And I'll thank McNulty for stealing my cash war chest question, then we'll wait until Friday. I couldn't help but notice on Slide 22, you mentioned expansions in Klucel, Benecel. Many of us recalled those expansions, if I'm not confused, one was in Virginia, one was a conversion in Belgium. Is that ultimately where the expansions will be, if you could confirm that, and then just also mention the longer-term growth outlook for Life Sciences, specifically excipients and how that ties into Asia, if at all?

Yes. No, so we -- I mean, we're being very prudent in planning out our capacity expansions, not just for these next expansions but even for the future, where do we want to bring them. So balancing out where the most efficient investments are going to be so that we can leverage infrastructure and profitability. Also, we want to look at longer term where we want to go. So this -- I would assume the first series of investments will leverage our cost position and our infrastructure for value. But we have a longer-term plan so that we have a series of investments that we'll try to use our leverage, especially in Asia. So for those cellulosics, I would say that, that core base will be the big driver. But we're using our network. If you look at, for example, biofunctionals that we're -- is growing very, very well for us in personal care and it's very profitable. We're expanding and putting capacity in our Nanjing plant. So we're leveraging that footprint so that we can start producing, not just to supply Asia, but this will allow us now to develop products with our customers in Asia using different raw materials, different development opportunities that our customers are interested in that region. So the broader growth is not just in cellulose, it's on some other areas that tend to be lower asset intensity, but we do still need to make the investment and leverage the infrastructure we have.

And our next question comes from Mike Harrison from Seaport Research.

I obviously appreciate the outlook on fiscal '22. But you don't provide any quarterly guidance. So I was wondering if you can give us some thoughts on the cadence of earnings as the year progresses. Is it fair to assume that there are some headwinds on the margin front to start the year and then better margin performance later in the year? And also maybe comment on when we start to see the contributions from the capacity expansions.

Right. So let me start with the last one. The contributions will come more towards the back end of the year. I mean, we are making debottlenecking investments and all that, that we'll bring on throughout the year. But the bigger things will start coming in a bit later in the year. Full transparency on the margins and some of the headwinds, and this is my take, there's a lot of noise right now in the market. So I do think the front end is where we see it's more frothy right now. I will tell you, even as we looked at our plans for 2022, between the original plans we were working on 2 months ago and the one that we've locked out now, we saw a significant increase in raw material and cost inflation. And we're obviously moving on price. And I'll tell you, as we move that now, we're seeing some things softening in other areas. So it is very volatile. I think the issue right now is to understand the directions and to be agile in moving. So I think what you need to -- what we -- all companies need to do and us, this is our mantra right now, is make sure that we're moving with speed and agility to address what we see and the challenges that are ahead of us. So we're moving on price, making sure that we're moving. But it is going to remain volatile. I think the front end will be more volatile. And as we get into the back end, where supply chain dynamics start easing off, will be better. I think the other part that we'll monitor in the early part is the winter. And it's really two things: COVID, how will that behave and what is in demand in the coming months; and two is energy, that in some parts of the world, there's still a lot of volatility around the energy side.

All right. And then you mentioned within the pharma business that the funding has been directed to COVID. Hopefully, as COVID runs its course, it's going to be shifting back to some other areas that could be a little bit more advantageous for you. We've also heard other pharma-related companies talk about some reductions in demand because fewer people are getting sick as we continue with social distancing and mask-wearing. So maybe just, I guess, give some thoughts on the pharma business as we kind of transition to this post-pandemic environment and how you see the growth opportunities going forward.

Well, I think two things. One, we're seeing opening up and to -- I'm not going to say I'm a medical expert, but there are obviously drops in some therapy just because people are not going out and not getting as exposed. But at the same time, we're hearing that as people do, things are spiking, just a simple flu and other things are also spiking. So I think that, we'll have to see how it plays out. I think for us, I mean, it's a pretty broad-based portfolio in terms of the therapies that we go into. I think that the part that we'd point out is that we do have good business, especially with a lot of the generic customers around the world funding. And I would say AIDS is a great example of some of the therapies that we are in that go to AIDS treatments have suffered during the last year as funding has shifted to COVID. And this is mostly driven by government and donor funding. So I think as that normalizes, the broader portfolio in which we sell into will benefit from that.

I think also as we see more elective procedures done, there should also be an uptick in the related therapeutics that go along with those. Because those are still very, very muted really across the world today.

And our next question comes from John Roberts from UBS.

I think you transferred BDO at cost, not market. I just want to confirm if that's true, and therefore, the integrated margin compression was even more relative to market BDO. And as good as the I&S earnings were, I guess, it would have been even higher if they were all priced at market.

No. Actually, I would say we are transferring at -- it's a transfer price that is based on a large buyer. We have some big customers, so we try to set our pricing with a similar type of formula, recognizing some producer economics to it but also market price. So this is a bit of a pocket switch for us. If you look at the headwind in our Life Sciences and personal care, the majority, when we say inflation and cost, the majority of the impact in 2021 was BDO transfer pricing. It's not the general cost. It is that transfer pricing. So what we've done is put an edge on the businesses so that they have moved on price. We probably did, to your point, performed better because we moved on price. We didn't cover it all. But if we had not -- if we hadn't been transferring at cost, we probably would not have moved this aggressively on price and the net for the company would have been lower. So our focus is not right now on which pocket gets the money, it's on making sure that we're getting the money and we're getting the movement across the businesses. One comment that I will make on the I&S business because it will not be a big focus of our discussion on Friday, but as we've said in other calls, this is about integration. So we want to leverage integration, not just cost, security of supply and making sure that we have a smooth operation for our core businesses. But fundamentally, it's about value. If that integration doesn't create value, then we can -- we'll consider our strategic alternatives. But if we look at the business, it's changed a little bit. So we are doing the transfer price. So…

Okay. And then back to the pharma business, IFF seems to have similar supply chain problems with its pharma excipient business. And I think of the two of you as two of the largest suppliers. So what are the pharma customers doing if two large suppliers both have issues? Or is the demand for pills and gel tabs and so forth down enough that there's not -- they don't need as much product?

So two things that I would say is it's to not confuse ability to meet demand with ability to meet sales recognition. The problem that we're having is getting on ships. So if it doesn't get on the ship on September 27, it's an issue for us in terms of recognition in the revenue for our company. But if we ship it on October 3, for our customers, it's a 5-day -- so our issue of the timing is not that we can't get the material, get it to our customers. It just creates a lot of noise for us in terms of how we can deliver. So our bigger issue is that supply side of the equation with ocean freight. And then we're managing through. Yes, we have issues with small raw materials and those kinds of things that impact our operations. But that part, actually, we've been managing very well. It's more that end of quarter loading of ships is really the part that's out of our control. So the actions we've taken is building inventory in our warehouses around the world, accelerating shipments, intercompany shipments, working with our customers that are buying indent so that we can accelerate their orders and get them more ships on time and make sure the inventory is ready. So when the ships are there, then we can roll them that we don't miss the ship.

. And our next question comes from Jeff Zekauskas from JPMorgan.

Your BDO operation, the Intermediates & Solvents, earned about $20 million in EBITDA in the fourth quarter. And so if you annualize that, that's about $80 million and your EBITDA this year in that segment was about $50 million. So what you said is that the prices are going to be strong going into next year. So order of magnitude, there's a $30 million increase in EBITDA from the BDO operation alone. But your guidance at the bottom of the range is $550 million. So if you go from $520 million to $550 million, you can do that on BDO alone. So is the meaning of your guidance that there's a lot of growth in BDO and there's a little bit of growth elsewhere and there's only a little bit because raw materials are up a little bit and you're not growing as fast as you can normally yet? Is that the way to understand your guidance? Or do I understand it in a different way?

No, you would understand it a different way. If you look at BDO, what we're forecasting is the front end of the year, we'll continue to have strong prices. We do see some softening as we move forward. There is noise there. But as we look at our plan, it's sort of a curve that starts coming down. Butane is a huge part of our raw material inflation in the year. So that was big this year, it was big next year. So there are balances there. The rest of the portfolio is doing well. The BDO transfer price is an issue for the other businesses, and we're moving on price. And as that softens out, if we're -- for 50% of that calculation, it's either going to benefit our downstream business or the BDO. And so we're not as concerned of where it's going to come. I think the issue right now is getting our pricing, assuming it's going to stay on the BDO side in terms of our transfer pricing and that we're passing on the price increases so that we can ensure that our downstream businesses are well positioned.

A couple of other things to add to that. As you're aware, Jeff, we periodically have to do catalyst change. And that's a pretty major shutdown for that business. We have one of those planned for fiscal '22. So that will be a headwind to earnings for the BDO business or the I&S business. But as we think of it, I mean, most of the growth year-over-year is going to come from the core business and not from the I&S business.

Okay. And then for my follow-up, I take it that volumes in personal care shrank a little bit, excluding the acquisition. When do you expect that to begin to grow? And in Specialty Additives, can you -- your sales were up 13%. Can you talk about order of magnitude how much was volume and how much was price?

Yes, I'll start with the personal care piece. If you look at the quarter, if you take out the acquisition and you also disregard the purchase for resale volumes that we exited, volumes were up 5%. Organic volume growth was 5% in personal care Q4 of '21 versus Q4 of '20. So we did see -- and it was really across all of our end markets, skin, hair, oral as well as the business all grew. In the Specialty Additives piece, organic volume growth was up about 4% -- in total for Specialty Additives. Coatings was up about 4%. Performance specialties and energies were stronger than that and we saw a decline in the construction business. And so again, overall volume is up about 4%. So there was a good bit of price in there, too.

And that concludes our question-and-answer session for today. I'd like to turn the conference back over to Mr. Novo for closing remarks.

Okay. Well, thank you very much, Valerie, and thank you all of you for joining us today. And most importantly, thank you to the entire Ashland team for all the support and hard work that has helped us achieve these results. I look forward to talking to all of you on Friday. And we look forward to having a productive and interesting discussion with all of you about Ashland, the changes within our portfolio, the strength and the excitement that we have about the future. So thank you very much, and we look forward to talking to you on Friday. Bye.

This concludes today's conference call. Thank you for participating. You may now disconnect.