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Trinseo Reports Third Quarter 2017 Financial Results; Updates 2017 Full Year Outlook and Provides Initial 2018 Full Year Outlook
BERWYN, Pa., Nov 02, 2017 (BUSINESS WIRE) -- Copyright Business Wire 2017

--Net Income of $33 million and diluted EPS of $0.74

--Adjusted EPS of $2.18

--Adjusted EBITDA of $166 million

--Cash provided by operating activities of $158 million and Free Cash Flow of $124 million inclusive of approximately $50 million cash sourced from working capital

Trinseo (NYSE: TSE):

Trinseo (NYSE: TSE), a global materials company and manufacturer of plastics, latex binders and synthetic rubber, today reported its third quarter 2017 financial results with net sales of $1,097 million, net income of $33 million, and earnings per diluted share of $0.74. Third quarter Adjusted EPS was $2.18 and Adjusted EBITDA was $166 million.

Net sales in the third quarter increased 17% versus prior year driven primarily by the pass through of higher raw material costs. Third quarter net income of $33 million, which included a pre-tax charge of approximately $66 million related to the Company's recent debt refinancing, was $34 million lower than prior year. Third quarter Adjusted EBITDA of $166 million was $23 million higher than prior year. The higher operational profitability was due primarily to higher styrene margins from unplanned outages, including an approximately $15 million impact from Hurricane Harvey, as well as higher polycarbonate and Latex Binders margins. These impacts were partially offset by unfavorable raw material timing, net of favorable price lag, in the current year due mainly to decreasing butadiene costs.

Commenting on the Company's performance, Chris Pappas, Trinseo President and Chief Executive Officer, said, "Business fundamentals remain strong across our segments. Our third quarter operating results were above expectations due to unplanned styrene outages, including the impact of Hurricane Harvey. During the quarter we executed a successful debt refinancing which is expected to decrease our annual cash interest by about $25 million. In addition, we started our new ABS plant in China, closed on the acquisition of API Plastics, and continued to make progress on our SSBR expansion and pilot plant."

Third Quarter Results and Commentary by Business Segment

-- Latex Binders net sales of $266 million for the quarter increased 10% versus prior year primarily from the pass through of higher raw material costs. Lower sales volume decreased revenue by 4%, excluding the divested Latin America business, driven by lower sales volume in the North America paper and carpet markets. Adjusted EBITDA of $32 million was $2 million above prior year from higher margins in Asia due to better market conditions, which was partially offset by lower sales volume.

-- Synthetic Rubber net sales of $119 million for the quarter increased 5% versus prior year primarily due to the pass through of higher raw material costs, which was partially offset by customer destocking in SSBR. Adjusted EBITDA of negative $6 million was $34 million below prior year from unfavorable net timing impacts of $25 million, due to rapidly declining butadiene prices, in addition to SSBR expansion-related costs as well as lower sales volume.

-- Performance Plastics net sales of $207 million for the quarter was 18% above prior year from higher sales volume to the North America automotive and Asia consumer electronics markets as well as the pass through of higher raw material costs. Adjusted EBITDA of $29 million was $1 million below prior year primarily from margin compression, partially offset by higher sales volume.

-- Basic Plastics net sales of $394 million for the quarter was 22% above prior year from higher polystyrene and copolymer sales volume as well as the pass through of higher styrene cost. Adjusted EBITDA of $42 million was $8 million above prior year due primarily to higher polycarbonate margin, from very tight market conditions, as well as higher copolymer volume.

-- Feedstocks net sales of $111 million for the quarter was 37% above prior year due to the pass through of higher styrene prices. Adjusted EBITDA of $46 million was $33 million above prior year from higher styrene margin due to unplanned production outages, including approximately $15 million related to Hurricane Harvey.

-- Americas Styrenics Adjusted EBITDA of $44 million for the quarter was $10 million above prior year due to higher styrene sales volume, including impacts from a stronger export market.

Third Quarter Cash Generation

Cash provided by operating activities for the quarter was $158 million and capital expenditures were $34 million, resulting in Free Cash Flow for the quarter of $124 million. Third quarter cash from operations and Free Cash Flow included a favorable impact of approximately $50 million from lower working capital primarily from decreasing raw material prices. At the end of the quarter, the Company had $319 million of cash after the third quarter expenditures of $80 million for the purchase of API Plastics as well as debt refinancing related expenditures of $53 million for a call premium to retire our previous senior notes and $36 million for an overall reduction of debt. For a reconciliation of Free Cash Flow to cash provided by (used in) operating activities, see note 3 below.

Outlook

-- Fourth quarter 2017 net income of $68 million to $77 million and earnings per diluted share of $1.53 to $1.71

-- Fourth quarter 2017 Adjusted EBITDA of $130 million to $140 million and Adjusted EPS of $1.53 to $1.71

-- Full year 2017 net income of $280 million to $288 million and earnings per diluted share of $6.23 to $6.41

-- Full year 2017 Adjusted EBITDA of $605 million to $615 million and Adjusted EPS of $7.53 to $7.71

-- Full year 2018 net income of $343 million to $367 million and earnings per diluted share of $7.66 to $8.20

-- Full year 2018 Adjusted EBITDA of $620 million to $650 million and Adjusted EPS of $7.66 to $8.20

Commenting on the outlook for the fourth quarter and full year 2017 Pappas said, "Third quarter operating results were above expectations due to stronger than expected styrene margins, and this has continued into the fourth quarter. We expect strong business fundamentals through the end of the year and have therefore updated our full-year outlook."

Continuing with comments on the outlook for full year 2018 Pappas said, "Profitability should be higher in 2018 due mainly to Performance Materials growth initiatives and continued, strong supply and demand dynamics in Basic Plastics & Feedstocks."

For a reconciliation of fourth quarter and full year 2017, as well as full year 2018, net income to Adjusted EBITDA and Adjusted EPS, see note 2 below. Additionally, refer to the appendix within Exhibit 99.3 of our Form 8-K, dated November 2, 2017, for further details on how net timing impacts are defined and calculated for our segments.

Conference Call and Webcast Information

Trinseo will host a conference call to discuss its third quarter 2017 financial results on Friday, November 3, 2017 at 10 AM Eastern Time.

Commenting on results will be Chris Pappas, President and Chief Executive Officer, Barry Niziolek, Executive Vice President and Chief Financial Officer, and David Stasse, Vice President, Treasury and Investor Relations. The conference call will be available by phone at:

The Company will also offer a live Webcast of the conference call with question and answer session via the registration page of the Trinseo Investor Relations website.

Trinseo has posted its third quarter 2017 financial results on the Company's Investor Relations website. 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 November 3, 2018.

About Trinseo

Trinseo (NYSE: TSE) is a global materials solutions provider and 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, medical devices, lighting, electrical, carpet, paper and board, building and construction, and tires. Trinseo had approximately $3.7 billion in net sales in 2016, with 16 manufacturing sites around the world, and nearly 2,200 employees. For more information visit www.trinseo.com.

Use of non-GAAP measures

In addition to using standard measures of performance and liquidity that are recognized in accordance with accounting principles generally accepted in the United States of America ("GAAP"), we use additional measures of income and liquidity excluding certain GAAP items ("non-GAAP measures"), such as Adjusted EBITDA, Adjusted EPS, and Free Cash Flow. We believe these measures are useful for investors and management in evaluating business trends and performance each period. These measures are also used to manage our business and assess current period profitability, as well as to provide an appropriate basis to evaluate the effectiveness of our pricing strategies. Such measures are not recognized in accordance with GAAP and should not be viewed as an alternative to GAAP measures of performance. The definitions of each of these measures, further discussion of usefulness, and reconciliations of non-GAAP measures to GAAP measures are provided in the Notes to Condensed Consolidated Financial Information presented herein.

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," "outlook," "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, net sales, 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 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; the loss of customers; the market price of the Company's ordinary shares prevailing from time to time; the nature of other investment opportunities presented to the Company from time to time; and the Company's cash flows from operations. 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

EBITDA is a non-GAAP financial performance measure that we refer to in making operating decisions because we believe it provides our management as well as our investors with meaningful information regarding the Company's operational performance. 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.

We also present Adjusted EBITDA as a non-GAAP financial performance measure, which we define as income from continuing operations before interest expense, net; income tax provision; depreciation and amortization expense; loss on extinguishment of long-term debt; asset impairment charges; gains or losses on the dispositions of businesses and assets; restructuring; acquisition related costs and other items. In doing so, we are providing management, investors, and credit rating agencies with an indicator of our ongoing performance and business trends, removing the impact of transactions and events that we would not consider a part of our core operations.

Lastly, we present Adjusted Net Income and Adjusted EPS as additional performance measures. Adjusted Net Income is calculated as Adjusted EBITDA (defined beginning with net income, 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 per weighted average diluted shares outstanding for a given period. We believe that Adjusted Net Income and Adjusted EPS provide transparent and useful information to management, investors, analysts and other stakeholders in evaluating and assessing our operating results from period-to-period after removing the impact of certain transactions and activities that affect comparability and that are not considered part of our core operations.

There are limitations to using the financial performance measures noted above. These performance measures are not intended to represent net income or other measures of financial performance. As such, they should not be used as alternatives to net income as indicators of operating performance. Other companies in our industry may define 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, which is determined in accordance with GAAP.

For the same reasons discussed above, we are providing the following reconciliation of forecasted net income to forecasted Adjusted EBITDA and Adjusted EPS for the three months and year ended December 31, 2017, as well as for the year ended December 31, 2018. See "Note on forward-looking statements" above for a discussion of the limitations of these forecasts.

Note 3: Reconciliation of Non-GAAP Liquidity Measures to Cash from Operations

The Company uses Free Cash Flow to evaluate and discuss its liquidity position and results. Free Cash Flow is defined as cash from operating activities, less capital expenditures. We believe that Free Cash Flow provides an indicator of the Company's ongoing ability to generate cash through core operations, as it excludes the cash impacts of various financing transactions as well as cash flows from business combinations that are not considered organic in nature. We also believe that Free Cash Flow provides management and investors with a useful analytical indicator of our ability to service our indebtedness, pay dividends (when declared), and meet our ongoing cash obligations.

Free Cash Flow is 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 differently than we do. As a result, it may be difficult to use this or similarly-named financial measures that other companies may use, to compare the liquidity and cash generation of those companies to our own. The Company compensates for these limitations by providing the reconciliation below, which is determined in accordance with GAAP.

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