Good day. Thank you for standing by. Welcome to Cabot's Third Quarter 2024 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question-and-answer session. [Operator Instructions] Please note that today's conference is being recorded. I will now hand the conference over to your speaker host Steve Delahunt, Vice President, Treasurer and Investor Relations. Please go ahead.

Thanks, Olivia, and good morning. I would like to welcome you to the Cabot Corporation earnings teleconference. With me today are Sean Keohane, CEO and President; and Erica McLaughlin, Executive Vice President and CFO. Last night we released results for our third quarter of fiscal year 2024, copies of which are posted in the Investor Relations section of our website. The slide deck that accompanies this call is also available in the Investor Relations portion of our website and will be available in conjunction with the replay of the call. During this conference call, we will make forward-looking statements about our expected future operational and financial performance. Each forward-looking statement is subject to risks and uncertainties that could cause actual results to differ materially from those projected in such statements. Additional information regarding these factors appears in the press release we issued last night in our 10-K for the fiscal year ended September 30, 2023, and in subsequent filings we make with the SEC, all of which are available on the company's website. In order to provide greater transparency regarding our operating performance, we refer to certain non-GAAP financial measures that involve adjustments to GAAP results. Any non-GAAP financial measures referenced on this call are reconciled for the most directly comparable GAAP financial measure in a table at the end of our earnings release issued last night and available in the Investor section of our website. I will now turn the call over to Sean, who will discuss the third quarter highlights, followed by our progress in the area of sustainability and the company's recent cash flow performance. Erica will review the third quarter financial highlights and the business segment results. Following this, Sean will provide a strategic summary and closing comments and open the floor to questions. Sean?

Thank you, Steve, and good morning ladies and gentlemen, and welcome to our call today. I'm very pleased with our performance in the third quarter as adjusted earnings per share was up 35% to $1.92 compared to the same period in fiscal 2023. This level of performance reflects the continued strength of the Reinforcement Materials segment and a recovery to more normalized volume levels in the Performance Chemicals segment after the destocking that took place last year. EBIT in Reinforcement Materials grew 3% year-over-year to $136 million, marking the second best quarter in history. This result was achieved despite some weather related events in Mexico and Brazil that impacted volumes in the quarter and a less favorable regional mix. In the Performance Chemicals segment EBIT increased 72% year-over-year, driven by strong volume growth and a return to a more normalized product mix. It is encouraging to see that demand in strategic high value applications such as automotive and semiconductors rebounded to more normalized levels and reconnected to underlying demand after a very prolonged destocking cycle. Furthermore, our products targeted to strategic infrastructure applications continue to build momentum. Cash flow generation remains strong in Q3 with operating cash flow of $207 million. We returned $73 million of cash to shareholders in the third quarter of 2024 through a combination of share repurchases and dividends consistent with our balanced approach to capital allocation. And finally, we are proud to have earned the top rating of platinum from EcoVadis for the fourth consecutive year, reflecting our continued leadership in sustainability. At Cabot sustainability is embedded in all that we do, beginning with our purpose of creating materials that improve daily life and enable a more sustainable future. Our customers continue to seek more sustainable and circular solutions and they want to align with…

Thanks, Sean. I will start with discussing results for the company and then review the segment results. We reported adjusted EPS of $1.92 in the third quarter of fiscal 2024, up 35% compared to the third quarter of fiscal 2023, with growth coming from both the Reinforcement Materials and Performance Chemicals segments. Cash flow from operations was strong at $207 million in the quarter, which included a working capital decrease of $43 million. Discretionary free cash flow was $128 million in the third quarter. We ended the quarter with a cash balance of $197 million and our liquidity position remains strong at approximately $1.4 billion. Capital expenditures for the third quarter of fiscal 2024 were $52 million and we expect $220 million to $240 million of capital spending for the fiscal year. Additional uses of cash during the second quarter were $24 million for dividends and $49 million for share repurchases. Our debt balance was $1.1 billion and our net debt to EBITDA was 1.2 times. The year-to-date operating tax rate was 28% and we expect the fiscal year rate to be in between the range of 27% to 28%. Now moving to Reinforcement Materials. During the third quarter, EBIT for Reinforcement Materials was $136 million, which was an increase of $4 million as compared to the same period in the prior year. The increase was driven by higher pricing and improved product mix in our 2024 calendar year customer agreements and higher volumes, partially offset by a less favorable geographic mix and higher costs. Globally volumes were up 4% in the third quarter as compared to the same period of the prior year due to 9% growth in Asia Pacific and Europe, partially offset by a 4% decline in volumes in the Americas. Volumes in the Americas were negatively…

Thanks, Erica. I'm extremely pleased with another quarter of strong operating results in what was a challenging environment. Based on the third quarter performance and our outlook for the fourth quarter, we are raising our expected full year outlook of adjusted earnings per share to be in the range of $7 to $7.10. This is an increase from our previous guidance of $6.65 to $6.85 and is $0.30 at the midpoint. This reflects our strong commercial and operational execution and the value of the strategic choices we have made in recent years. The strong results in the Reinforcement Materials segment are expected to continue with EBIT growing year-over-year from higher pricing and better product mix in our 2024 customer agreements and higher anticipated volumes. In Performance Chemicals, we expect the year-over-year growth to continue from higher volumes and a more favorable product mix. The outlook for cash flow remains strong, which is sufficient to fund our growth investments and return a robust level of cash to shareholders. I believe we are executing well against our Creating for Tomorrow strategy and the long-term targets that we communicated at Investor Day in 2021. The increase in our outlook for adjusted earnings per share in fiscal 2024 would place us at or above the high-end of the targeted range of 8% to 12% adjusted EPS compound annual growth rate from fiscal year 2021. Also, we remain on track to deliver our target of more than $1 billion of cumulative discretionary free cash flow over the last three years. I am proud of the Cabot team and the way they have navigated a turbulent period to support our customers and deliver strong results for our shareholders. We are excited about the momentum we have built and we plan to share more with you at our Investor Day, which we will host in Boston on December 4. At that Investor Day, we plan to discuss our strategy, key growth initiatives, sustainability leadership and the next set of long-term financial targets. Hopefully we can see you all there in-person. Thank you very much for joining us today and I will now turn the call back over for our Q&A session.

Thank you. [Operator Instructions] Now, first question coming from the line of John Roberts with Mizuho. Your line is open.

Thank you and congrats on a nice quarter.

Thank you, John.

How far long are you on your rubber black contract discussions for next year?

Well, as you know, John, we don't talk about contract negotiations while they're ongoing. But I would say the timeline would play out pretty consistent with the historical pattern, which is to begin in sort of late summer for most customers and progress through the fall period. So I think the normal timing cycle is what we'd expect this year.

And then there are a lot of cross currents in China that's there. You have a material sized business there. What's your read on what's going on with the Chinese economy?

Yes. So I would say, as you said, lots of cross currents and lots of global interplay here between China and rest of the world. But if I look at China, I would say the economy appears to have stabilized, albeit at a lower level of growth than historical. And we are seeing some pretty robust demand in some of our key end markets, including tires driven by replacement tire exports. But also auto OE and electronics are pretty strong right now. But again, the growth rate, I think has pulled back a bit. Certainly we've seen the recent GDP numbers there down a bit and down from where their targets. So I think it's sort of a slower economic environment overall, and I think one that remains a little bit choppy. PMI bumps over 50, then it dips below. And so there is a bit of this back and forth, I would say. So overall, we remain cautious on the outlook for the China economy because I think the housing market, which is a big part of the GDP there, remains sluggish and FDI is very, very low. And so I think this sort of reflects weak investment confidence. Now counterbalancing that I would say the government is trying to stimulate consumer confidence, but other than in services and travel and leisure, things like that, there doesn't seem to be much sustained momentum across durable goods. So, that’s a bit of what we see. Now our position there remains strong. We’ve been an operator there in China since the 1980s with great local management teams and strong customer partnerships. So, we’ll continue to actively manage this really dynamic situation. But that’s a bit, John, of what we’re seeing on the ground there in China right now.

Great. Thank you.

Thank you. Our next question coming from the line of David Begleiter with Deutsche Bank. Your line is open.

Thank you. Good morning.

Hi, David.

Sean what did the Altamira force majeure cost you guys in Q3?

So the Altamira, we had two weather events, John – I mean, David, that impacted us in the quarter, one Altamira and then flooding in the southern part of Brazil that impacted not so much our production but our customers’ and therefore our demand. And the impacts of these events were in the order of about $5 million in the quarter.

Very good. And July 1, there was, the ban began on Russian imports of carbon black into Europe. Have you seen any material change in buying behavior or other activities post July 1?

Yes. So maybe just a quick recap on the overall sanction. So certainly prior to the Russia invasion of Ukraine, carbon black volumes into the EU 27 were pretty significant, somewhere around 550,000 tons per year. And then after the invasion commenced, those volumes started to decline as many customers, for reputational reasons, moved away and by the time sanctions were announced, actually, that run rate was sort of cut in half. Now, Russian sanctions, as you just point out, went into full effect on July 1. And so carbon black can no longer be imported into the EU 27. I would add that additionally, sanctions have been imposed on Belarus to take effect on August 2. There is a Russian producer that has a plant in Belarus, and so those will now be covered under sanctions. And again, carbon black no longer be imported into the EU 27 from there either. So this impact has created a shortage of carbon black in the region. And I think it’s driving a strong demand from customers to secure local supply and long-term supply, which we would expect this to continue. So, I don’t see any change in behavior there because this has been a well-telegraphed dynamic, and so customers have been preparing for this. I think I may have mis-spoke on the Belarus timing, David, I meant to say October 2 is the effective date of when that goes in. But anyway, that’s sort of the big picture of what’s happening. And again, because it’s been something that’s been underway for quite some time, we see a continuation of the desire to secure materials locally. I would say it’s probably enhanced even further by continued uncertainties, geopolitical uncertainties, and how those can impact transportation and imports and the like. So, continuation, I would say.

Thank you.

Thank you. Now, our next question coming from the line of Josh Spector with UBS. Your line is open.

Yes. Hi, good morning. And I guess first, congrats on a really solid quarter here. I wanted to ask on performance, just pretty surprising inflection, at least the strength of it. So I’m curious if you give more color on some of the moving pieces there. And just considering how the last year has been relative to two, three years ago. I guess, what’s the level of earnings that you’re willing to underwrite there at this point? Is it $50 million plus, like the base level past destocking, or is there anything temporary or anything else you would call out near term.

Sure. Yes, thank you. Thanks, Josh. Well, we certainly we’re very pleased to see the strength in Performance Chemicals. And I would say the drivers are really two main factors. One, of course, volume growth was strong, and so the operating leverage that comes from that is material. But I think, most importantly, what I would say the normalization of our product mix, which has been a significant drag for this business over the last four to six quarters, that has now normalized. And we would view that as sort of volumes having reconnected to underlying demand there. And so I’ll give a couple of examples. Certainly, the automotive sector is a very important one for this segment, where products typically in this sector are specified in and end up carrying good, strong margins. And while you’ve seen some growth and relative strength in auto production, a lot of our products, because the value chains are longer, really suffered from prolonged destocking. And even though the auto build’s numbers were looking pretty good, we weren’t seeing it yet in our demand as the lengthy value chain sort of worked out its inventory that has now reconnected. And so seeing that strong mix was certainly a big driver. And again, we think it’s reconnected. So that’s positive. I would say another key factor in the mix was semiconductors. So the CMP application, where we sell fumed silica, last year was a very, very weak quarter across that whole chain. And again, I think now inventories have worked their way out, and we’re seeing a reconnection there. And so good, strong margins in that application. And then finally, we have been underwriting a lot of new product growth in areas around infrastructure. So wire and cable, think about this as connecting offshore…

Thanks. That’s really comprehensive. I guess one quick follow-up there is just so when you think about the fumed silica and maybe the building and construction market, I assume that hasn’t improved much. I guess if you can comment there, if anything has changed and how much is that still an overhang versus some of the numbers you just gave of the segment?

Yes. Yes, so certainly the building and construction market is an important end market for silicones and therefore for a sizable portion of our fumed silica business. And I would say we have not yet seen signs of any bounce there. I would say it is stable, is probably the best way to characterize it. But whether that’s in China or outside of China and in the west, not really seen any significant bounce there. I think likely if we are beginning to head into a rate cut cycle, then that could be a catalyst for some improvement in the housing and construction sector. But I think it would be some trickle from that that would probably be needed to see it move out of its sort of what I would call kind of stable position right now. So, more runway there, I would say, as that end market gradually recovers.

All right thanks, Sean.

Thank you. And our next question coming from the line of, Jeff Zekauskas from JPMorgan. Your line is open.

Thanks very much. When you look at Russian and Belarusian carbon black production, has it changed very much? That is, are they making the same amounts that they used to make? They are just not shipping it to Europe or has their production actually fallen?

Yes. Hi, Jeff. Yes, so, I mean, difficult to see with a great level of precision. I don’t believe that there have been any material expansions there. So, I think what you’re dealing with is the structural capacity that existed pre-invasion of Ukraine remaining, and it’s just moving around differently because of the impact. So that’s our best view of that, Jeff.

Okay. One of the other carbon black companies spoke of consumers trading down to or buying lower quality tires, more exports coming in from the offshore areas as something that was leading to lower and different tire production in the United States. Is that something that you believe or you don’t?

Well, I do think there is some evidence in the tire industry of trade down effect. And we have seen historically two dynamics that can emerge when you have economic – sort of macroeconomic stress. One is when the economic environment is very weak, then you have seen periods where consumers will stretch the replacement cycle a little bit longer than they probably should. I think in the case we’re in right now, while GDP in the U.S., for example, remains fairly robust, the high level of inflation that we’re working our way out of and higher interest rates, I think, probably are, I think, there’s some evidence of that that it’s stressing the consumer, particularly in the sort of lower end of the income scales, and causing some trade down effects. So I think that there is definitely some evidence of that. And the combination of sort of stretching this replacement cycle and seeing some trade down effect is something that has happened before. Historically, it’s worked itself out. And I think we’d expect the same here, especially as inflation is subsiding and we appear to be entering a rate cut cycle which should begin to ease some of those pressures.

I guess, lastly, are there any possible tariffs that might be put on tires that come from China or other offshore areas that might affect you, that you’re aware of?

Well, around the world today in the west, there are tariffs that are in place. For example, there are fairly significant tariffs today in the U.S. on Chinese tires. So the result of that is that most of the imports into the U.S. are coming from the ASEAN countries and then most of the Chinese exports of tires are flowing into Europe, for example. So tariffs do create movement and sometimes some supply chain distortions, as you would expect. But there are tariffs in place today in U.S. and Europe and in South America that impact tire flows. Now, the elevated level of imports that we have seen is something that will likely create some back pressure in the form of more anti-dumping duties and pursuit of tariffs. We certainly could expect that to happen and to be implemented in some way. So, I think the combination of the inflation coming down and rates reducing, easing things for the consumer, a bit of, and I think some tendencies around protectionism, the combination of those, I think, it’s reasonable to think would kind of move the tire imports back to kind of a more normalized level.

Great. Thank you so much.

Thank you. And I am showing no further questions in the queue at this time. I will now turn the call back over to Mr. Sean Keohane for any closing remarks.

Great. Well, thank you. Thank you all for joining today and for your continued support of Cabot. And I would just remind you again that we intend to host an Investor Day on December 4 of this year and look forward at that point to providing a fulsome wrap up of our last set of Investor Day goals and targets from 2021 and setting out our path forward in terms of strategy and our next set of long-term goals. So, hopefully you can all join us there in person here in Boston. Thank you very much.

This concludes today’s conference call. Thank you for your participation. And you may now disconnect.