Solutia, Inc. (SOA)

Q2 2010 Earnings Call

July 27, 2010 10:00 am ET

Executives

Susannah Livingston - VP, IR and Communications

Jeff Quinn - Chairman, President and CEO

Jim Voss - EVP and COO

Jim Sullivan - EVP and CFO

Analysts

David Begleiter - Deutsche Bank

Laurence Alexander - Jefferies

Frank Mitsch - BB&T Capital Markets

Doug Chudy - KeyBanc

Hassan Ahmed - Alembic Global

Presentation

Operator

Good day ladies and gentlemen and welcome to the Second Quarter 2010 Solutia Inc. Earnings Conference Call. My name is Stephanie and I will be your operator for today. At this time all participants are in listen-only mode. Later, we will conduct a question-and-answer session. [Operator Instructions]. I 'll now like to turn the conference over to our host for today Ms. Susannah Livingston, Vice President, Investor Relations and Communication. Please go ahead.

Susannah Livingston

Thank you, Stephanie and good morning to everyone. We are pleased you have taken the time to join Solutia 's second quarter conference call. Jeff Quinn, Solutia 's Chairman, President and Chief Executive Officer; Jim Voss, Executive Vice President and Chief Operating Officer; and Jim Sullivan, Executive Vice President and Chief Financial Officer are with me this morning.

First, I would like to remind you that we are webcasting this call which you can access through our website solutia.com. We will be using presentation materials today that are posted on the website along with the earnings release announcing second quarter results.

Finally, Solutia 's Form 10-Q will be filed within a few days. If you would please turn to slide two, during this call management may make certain forward-looking statements. These statements are based on management 's current expectations and are subject to change. Our actual results may differ materially.

Please read our commentary on forward-looking statements at the end of our press release or the statements in our quarterly and annual SEC filings. Our prepared remarks today include reference to non-GAAP financials in our discussions of earnings. For reconciliation of our non-GAAP measures to GAAP figures, please see the schedules in our earnings release and contained in the slides today. Also, just to be clear, we define EBITDA as earnings from continuing operations before interest, loss on debt extinguishment, taxes, depreciation, amortization and non-controlling interest. Adjusted EBITDA is EBITDA excluding certain gains and charges and stock-based compensation expense.

Now let me turn the call over to Jeff.

Jeff Quinn

Thanks Susannah and good morning and thanks to all of you for joining us for our second quarter earnings call. I want to begin today by discussing some highlights in the quarter, our recent acquisitions and some of the important growth drivers for our businesses, before I hand it over to Jim Voss, our Chief Operating Officer, who will talk about some of the ongoing internal growth projects in some of the important emerging markets and also comment on the end markets in which we participate. Jim Sullivan, our Chief Financial Officer will then provide a more detailed review of the numbers for the quarter and our expectations for the remainder of 2010. After that, I 'll come back on and provide some closing comments and talk a little bit about the big picture before we open the call up to your questions.

Moving over to slide 4, to talk a bit about the quarter, it 's with pleasure that I can report a record setting quarter for Solutia. Significant strategic process and an optimistic deal looking forward for the remainder of this year and 2011. We experienced year-over-year revenue improvement during the quarter as volumes were up 25% with the continuing trend of stabilizing and improving demand in our end markets. We had sequential improvement in volumes each month of the quarter, with June being the best month in the quarter, even excluding the acquisitions. The diverse geographic profile of our revenue base and our diverse product lines enabled us to benefit from increased demand in each business segment. Manufacturing utilization rates for the company as a whole, increased to the mid to upper 80s underpinning our strong performance for the quarter.

As I have stated many times in the past, and as again evident in this quarter 's results, our cost structure has been transformed on a permanent sustainable basis. This quarter, we posted the highest quarterly adjusted EBITDA we 've ever had of a 134 million and sustained our industry leading margin profile with an adjusted EBITDA margin right at 26% for the quarter. This is our fifth consecutive quarter worth margins in their mid 20s, further demonstrating sustain power and resiliency of our businesses.

Several other noteworthy events also occurred during the quarter. We finalized the purchase of Etimex Solar the combination of EVA and PVB encapsulant offered by one supplier will be a significant benefit to our solar module customers. Demonstrating the value of providing both critical encapsulants, we are all ready scheduling meetings for prospective customers who previously had not purchased from either company.

As we announced two weeks ago, Solutia will be rapidly expanding Vistasolar 's reach by adding a manufacturing capacity for EVA at our Suzhou, China Advanced Interlayers planned.

We also completed the Novamatrix acquisition in the quarter; consistent with our overall portfolio of strategy, this acquisition further reinforces performance films leading global position in window films. The V-Kool and Huper Optik high-end brands helped round out performance films product offering, provide different yet complementary distribution channels in select parts of the world and bring geographic presence in high growth areas of Asia and the Middle East.

Essentially, these acquisitions are a significant step delivering on our commitment to strategically grow our specialty chemicals and performance materials portfolio. Finally, as you have seen this quarter, we announced a number of capital investments to sustain the demand we are experiencing in emerging markets. Jim Voss will talk about these projects in later in a moment.

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