Year Ended 2015 Summary
Fourth Quarter 2015 Summary
Trinseo (NYSE: TSE), a global materials company and manufacturer of plastics, latex binders and synthetic rubber, today reported its fourth quarter and full year 2015 financial results with revenue of $897 million and $3,972 million, respectively, and net income of $43 million and $134 million, respectively.
Additionally, results for the fourth quarter included Adjusted EPS of $1.11 per diluted share and Adjusted EBITDA of $116 million; these included an unfavorable inventory revaluation impact of $0.28 and $17 million, respectively. Results for full year 2015 included Adjusted EPS of $4.59 per diluted share and Adjusted EBITDA of $492 million; these included an unfavorable inventory revaluation impact of $0.94 and $58 million, respectively.
Commenting on the Company’s performance, Chris Pappas, Trinseo President and Chief Executive Officer, said, “Trinseo finished the year with another strong quarter, delivering fourth quarter Adjusted EBITDA and Adjusted EPS which exceeded our guidance, excluding the impact of inventory revaluation.”
Commenting on full year 2015, Pappas continued, “I am very proud of what we accomplished during the year. We delivered record Adjusted EBITDA excluding inventory revaluation and record free cash flow. The Basic Plastics & Feedstocks division delivered a record $356 million of Adjusted EBITDA excluding inventory revaluation, and the Performance Materials division continued to deliver steady results, with $284 million of Adjusted EBITDA excluding inventory revaluation. We had record sales volume in Synthetic Rubber and record EBITDA in Performance Plastics. We commissioned our new latex reactor in China to meet growing demand, and we closed our latex plant in Gales Ferry, CT as part of a plan to reduce costs by $5 million per year. In addition, we successfully refinanced our debt, resulting in significantly lower interest expense, and we ended the year with a net leverage ratio of 1.6 times.”
Revenue in the fourth quarter decreased 20% versus prior year due to the pass through of lower raw material costs, with the significant decline in the overall energy complex, and currency, as the euro weakened in comparison to the U.S. dollar.
Fourth quarter Adjusted EBITDA of $116 million included a $17 million unfavorable impact from inventory revaluation. Adjusted EBITDA excluding inventory revaluation of $133 million was $29 million higher than prior year primarily due to higher margins in the Basic Plastics & Feedstocks division, including styrenic polymers and polycarbonate, as well as higher equity earnings from Americas Styrenics.
Fourth Quarter Results and Commentary by Business Segment
Free Cash Flow and Leverage
Free cash flow for the quarter was $117 million, inclusive of a $37.5 million dividend from Americas Styrenics, $30 million of capital expenditures, and $30 million of cash interest payments. At the end of the quarter we had record liquidity of $866 million, which included $431 million of cash. For full year 2015, we had free cash flow of $316 million excluding $69 million for the call premium associated with the second quarter refinancing. The full year result included $107 million of capital spending and $58 million of cash taxes.
As expected, our net leverage ratio continued to decrease due to higher EBITDA and cash generation, and was 1.6 times at the end of the year, compared to approximately 4.0 times at the end of 2013 and 2014.
Commenting on the outlook for the first quarter and full year 2016 Pappas said, “The 2015 full year results represented a step change in profitability for the company, driven by a $277 million increase in Basic Plastics & Feedstocks’ Adjusted EBITDA excluding inventory revaluation. More than three-quarters of this increase was due to ongoing structural improvements in the styrenic polymers, styrene monomer, and polycarbonate markets, which benefitted both Trinseo and our Americas Styrenics joint venture.”
Pappas continued, “We expect first quarter Adjusted EBITDA to be between $125 and $135 million, with the Performance Materials division improving to the $75 to $80 million range, and the Basic Plastics & Feedstocks division delivering between $75 and $85 million. These expectations assume only a minimal impact from inventory revaluation and no fly-up styrene margin driven by unplanned outages. In addition, I am pleased to report that we are increasing our full year 2016 Adjusted EBITDA expectation to $510 to $520 million, and Adjusted EPS to $5.25 to $5.45.”
Conference Call and Webcast Information
Trinseo will host a conference call to discuss its Fourth Quarter and Year Ended December 31, 2015 financial results tomorrow, Thursday, March 3, 2016 at 10 AM Eastern Time.
Commenting on results will be Trinseo’s Chris Pappas, President and Chief Executive Officer, and David Stasse, Vice President, Treasury and Investor Relations. The conference call will be available by phone at:
Participant Toll-Free Dial-In Number: 877-372-0878
Participant International Dial-In Number: +1 253-237-1169
Conference ID / passcode: 42529410
The Company will also offer a live Webcast of the conference call with question and answer session via registration page on the Trinseo Investor Relations website.
Trinseo has posted its Fourth Quarter and Year Ended December 31, 2015 financial results on the Company’s Investor Relations website on Wednesday, March 2, 2016 after the market close. The presentation slides will also be made available in the webcast player prior to the conference call. The Company will also furnish copies of the financial results press release and presentation slides to investors by means of a Form 8-K filing with the U.S. Securities and Exchange Commission.
A replay of the conference call and transcript will be archived on the Company’s Investor Relations website shortly following the conference call. The replay will be available until March 3, 2017.
Trinseo (NYSE:TSE) is a global materials solutions provider, and a manufacturer of plastics, latex binders, and synthetic rubber. We are focused on delivering innovative and sustainable solutions to help our customers create products that touch lives every day - products that are intrinsic to how we live our lives - across a wide range of end-markets, including automotive, consumer electronics, appliances, lighting, electrical, carpet, paper and board, building and construction, and tires. Trinseo had approximately $4.0 billion in revenue in 2015, with 18 manufacturing sites around the world, and approximately 2,100 employees.
Use of non-GAAP measures
Trinseo management believes that measures of income excluding certain items (“non-GAAP” measures) provide relevant and meaningful information to investors about the ongoing operating results of the Company. Such measurements are not recognized in accordance with accounting principles generally accepted in the United States of America (“GAAP”) and should not be viewed as an alternative to GAAP measures of performance. Reconciliations of non-GAAP measures to GAAP measures are provided in the Notes to Condensed Consolidated Financial Information.
Note on Forward-Looking Statements
This press release may contain “forward-looking statements” within the meaning of the safe harbor provisions of the United States Private Securities Litigation Reform Act of 1995. Words such as “expect,” “estimate,” “project,” “budget,” “forecast,” “anticipate,” “intend,” “plan,” “may,” “will,” “could,” “should,” “believes,” “predicts,” “potential,” “continue,” and similar expressions are intended to identify such forward-looking statements. Forward-looking statements in this press release may include, without limitation, forecasts of growth, revenues, business activity, acquisitions, financings and other matters that involve known and unknown risks, uncertainties and other factors that may cause results, levels of activity, performance or achievements to differ materially from results expressed or implied by this press release. Such risk factors include, among others: conditions in the global economy and capital markets, volatility in costs or disruption in the supply of the raw materials utilized for our products; loss of market share to other producers of styrene-based chemical products; compliance with environmental, health and safety laws; changes in laws and regulations applicable to our business; our inability to continue technological innovation and successful introduction of new products; system security risk issues that could disrupt our internal operations or information technology services; and the loss of customers. Additional risks and uncertainties are set forth in the Company’s reports filed with the United States Securities and Exchange Commission, which are available at http://www.sec.gov/ as well as the Company’s web site at http://www.trinseo.com. As a result of the foregoing considerations, you are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date of this press release. All forward-looking statements are qualified in their entirety by this cautionary statement. The Company undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.
Note 2: Reconciliation of Non-GAAP Performance Measures to Net income (loss)
EBITDA is a non-GAAP financial measure that we refer to in making operating decisions because we believe it provides meaningful supplemental information regarding the Company’s operational performance. We present EBITDA because we believe that it is useful for investors to analyze disclosures of our operating results on the same basis as that used by our management. We believe the use of EBITDA as a metric assists our board of directors, management and investors in comparing our operating performance on a consistent basis because it removes the impact of our capital structure (such as interest expense), asset base (such as depreciation and amortization) and tax structure.
We also believe that the presentation of Adjusted EBITDA provides investors with a useful analytical indicator of our performance and of our ability to service our indebtedness. We define Adjusted EBITDA as income (loss) from continuing operations before interest expense, net; income tax provision; depreciation and amortization expense; loss on extinguishment of long-term debt; asset impairment charges; advisory fees paid to affiliates of Bain Capital; gains or losses on the dispositions of businesses and assets; restructuring and other non-recurring items.
We present Adjusted EBITDA excluding inventory revaluation in order to facilitate the comparability of results from period to period by adjusting cost of sales to reflect the cost of raw materials during the period, which is often referred to as the replacement cost method of inventory valuation. We believe this measure minimizes the impact of raw material purchase price volatility in evaluating our performance. Our approach to calculating inventory revaluation is intended to represent the difference between the results under the FIFO and the replacement cost methods. However, our calculation could differ from the replacement cost method if the monthly raw material standards are different from the actual raw material prices during the month and production and purchase volumes differ from sales volumes during the month. These factors could have a significant impact on the inventory revaluation calculation.
Lastly, we present Adjusted Net Income (loss) and Adjusted EPS as additional performance measures. Adjusted Net Income (loss) is calculated as Adjusted EBITDA (defined beginning with Net income (loss), above), less interest expense, less the provision for income taxes and depreciation and amortization, tax affected for various discrete items, as appropriate. Adjusted EPS is calculated as Adjusted Net Income (loss) per weighted average diluted shares outstanding for a given period. We believe that Adjusted Net Income (loss) and Adjusted EPS provide transparent and useful information to management, investors, analysts and other parties in evaluating and assessing our core operating results from period-to-period after removing the impact of unusual, non-operational or restructuring-related activities that affect comparability.
There are limitations to using financial measures such as those discussed above. These performance measures are not intended to represent cash flow from operations as defined by GAAP and should not be used as alternatives to net income as indicators of operating performance or to cash flow as measures of liquidity. Other companies in our industry may use these performance measures differently than we do. As a result, it may be difficult to use these or similarly-named financial measures that other companies may use, to compare the performance of those companies to our performance. We compensate for these limitations by providing reconciliations of these performance measures to our net income (loss), which is determined in accordance with GAAP.
(a) Restructuring and other charges for the year ended December 31, 2015 relate primarily to the polycarbonate restructuring within our Basic Plastics & Feedstocks segment and charges incurred in connection with the closure of our Allyn’s Point manufacturing facility in Gales Ferry, Connecticut. Charges for the three month periods ended December 31, 2015 and September 30, 2015 related to the Allyn’s Point plant closure noted above. Charges for the three months and year ended December 31, 2014 were incurred primarily in connection with the shutdown of our latex manufacturing plant in Altona, Australia and the restructuring within our Basic Plastics & Feedstocks segment noted above.
(b) Net gain on disposition of businesses and assets for the three months and year ended December 31, 2014 of $0.6 million relates to the sale of the Company’s EPS business, which closed in September 2013, and for which a contingent gain of $0.6 million was recorded during the fourth quarter of 2014.
(c) Represents fees paid under the terms of our advisory agreement with Bain Capital. For the year ended December 31, 2014, this includes a charge of $23.3 million for fees incurred in connection with the termination of the Advisory Agreement, pursuant to its terms, upon consummation of the Company’s IPO in June 2014.
(d) Other non-recurring items recognized throughout 2015 stem from costs incurred related to the process of changing our corporate name from Styron to Trinseo. For the year ended December 31, 2014, these charges include a one-time $32.5 million termination payment made to Dow in connection with the termination of our Latex JV Option Agreement, and additional non-recurring items such as the name change costs mentioned above and severance charges incurred during the fourth quarter of 2014 due to the termination of certain key employees.
(e) See the discussion above this table for a description of inventory revaluation.
(f) Adjusted to remove the tax impact of the loss on extinguishment of long-term debt and the related items noted above in (a) - (d). Additionally, the three months and year ended December 31, 2015 exclude $6.6 million for the discrete impact of a valuation allowance recognized in China during the fourth quarter as well as $0.6 million of tax expense related to provision to return adjustments. The year ended December 31, 2015 also excludes a $0.6 million tax benefit recognized during the third quarter related to provision to return adjustments. The year ended December 31, 2014 excludes a $0.6 million tax benefit recognized during the fourth quarter due to the release of a reserve for an uncertain tax position, a $2.7 million tax benefit recognized during the second quarter related to a previously unrecognized tax benefit resulting from the effective settlement of a 2010 and 2011 audit with the IRS and a $1.0 million tax loss recognized during the first quarter related to a valuation allowance recognized in Greece.
(g) For the three months ended September 30, 2015 and December 31, 2015, and the full year ended December 31, 2015, the amount excludes accelerated depreciation of $0.8 million, $5.9 million, and $6.7 million, respectively, related to the closure of our Allyn’s Point facility. For the year ended December 31, 2014, the amount excludes accelerated depreciation of $3.5 million related to the termination of our contract manufacturing agreement with Dow at Dow’s Freeport, Texas facility.
Note 3: Defining Certain Liquidity Measures
The Company uses a number of measures to evaluate and discuss its liquidity position and performance, including Free Cash Flow and Liquidity. Free Cash Flow is defined as cash from both operating and investing activities, less the impact of changes in restricted cash. Liquidity is defined as total cash and cash equivalents plus unused borrowing capacity on the Company’s revolving debt and accounts receivable securitization facility.
Free Cash Flow and Liquidity are not intended to represent cash flows from operations as defined by GAAP, and therefore, should not be used as an alternative for that measure. Other companies in our industry may define Free Cash Flow and Liquidity differently than we do. As a result, it may be difficult to use these or similarly-named financial measures that other companies may use, to compare the performance of those companies to our performance. The Company compensates for these limitations by providing the following detail, which is determined in accordance with GAAP and the terms of related borrowing agreements.
The following provides further detail of how these amounts are derived for the periods discussed herein:
Trinseo (NYSE:TSE) is a global materials solutions provider and manufacturer of plastics, latex binders, and synthetic rubber with a focus on delivering innovative, sustainable, and value-creating products that are intrinsic to our daily lives. Trinseo is dedicated to making a positive impact on society by partnering with like-minded stakeholders, and supporting the sustainability goals of our customers in a wide range of end-markets including automotive, consumer electronics, appliances, medical devices, packaging, footwear, carpet, paper and board, building and construction, and tires. Trinseo had approximately $3.8 billion in net sales with 2,700 employees globally in 2019. For more information, please visit: www.trinseo.com.
This press release may contain “forward-looking statements” including, without limitation, statements concerning plans, objectives, goals, projections, expectations, strategies, future events or performance, and underlying assumptions and other statements, which are not statements of historical facts. Forward-looking statements may be identified by the use of words like “expect,” “estimate,” “will,” “may,” or expressions of similar meaning. Forward-looking statements reflect management’s evaluation of information currently available and are based on the Company’s current expectations and assumptions regarding the impact from the COVID-19 pandemic, the Company’s business, the economy and other future conditions. Specific factors that could cause future results to differ from those expressed by the forward-looking statements include, but are not limited to, risks related to the ongoing impact of the COVID-19 pandemic and those discussed in the Company’s Annual Report for the year ended December 31, 2019 filed with the Securities and Exchange Commission (“SEC”), in subsequent Quarterly Reports on Form 10-Q and in other filings and furnishings made by the Company with the SEC from time to time. Other unknown or unpredictable factors could also have material adverse effects on the Company’s performance. As a result of these or other factors, the Company’s actual results may differ materially from those contemplated by the forward-looking statements. The forward-looking statements included in this press release are made only as of the date hereof and are not a guarantee of future performance. The Company undertakes no obligation to publicly update or revise any forward-looking statement as a result of new information, future events or otherwise, except as otherwise required by law.