Orion S.A. Common Shares

greetings and welcome to the orion engineered carbon second quarter 2021 earnings conference call at this time all participants are in a listen-only mode the question and answer session will follow the formal presentation if anyone should require operator assistance during the conference please press star 0 on your telephone keypad as a reminder this conference is being recorded It is now my pleasure to introduce Wendy Wilson, Head of Investor Relations. Thank you. You may begin.

Thank you, Operator. Good morning, everyone, and welcome to Orion Engineered Carbon's conference call to discuss our second quarter 2021 financial results. I'm Wendy Wilson, Head of Investor Relations. With us today are Corning Painter, Chief Executive Officer, and Lauren Crenshaw, Chief Financial Officer. We issued our press release after the market closed yesterday, and we posted a slide presentation to the investor relations portion of our website. We will be referencing this presentation during the call. Before we begin, I'd like to remind you that some of the comments made on today's call are forward-looking statements. These statements are subject to the risks and uncertainties as described in the company's filings with the SEC. Actual results may differ materially from those described during the call. In addition, all forward-looking statements are made as of today, August 6th. The company does not undertake to update any forward-looking statements based on new circumstances or revised expectations. All non-GAAP financial measures described to the most directly comparable gap measures in the table attached to our press release. I'll now turn the call over to Corning Painter.

Thank you, Wendy. Good morning, everyone, and welcome to our second quarter earnings conference call. I'm pleased to report that we produced near record results for the second quarter, capping an excellent first half of the year. At $78.8 million, second quarter adjusted EBITDA was the second highest in our history, four times higher than year-ago levels and 10% higher than the second quarter of 2019, with both divisions contributing to the strong performance. Given that volumes year-ago were running at thus exceptionally low pandemic levels, I believe it's useful to compare our second quarter volume levels to 2019. On that basis, total company-adjusted EBITDA was up, again, 10.2% on volumes that were approximately 93% of second quarter 2019 levels and favorable specialty product mix. Compared with the first half of 2019, total company-adjusted EBITDA was up 10% on volumes that were approximately 95% of first half 2019 levels. Overall, against the backdrop of the COVID-19-induced economic downturn a year ago, both businesses demonstrated substantial operating leverage. In addition to delivering strong financial performance this quarter, we also settled our longstanding dispute with Evonik for approximately $79 million. We now consider this matter totally settled As I've said many times, we have been managing our company's capital plan without counting on a recovery from a VONIC. Therefore, investors and creditors should view the $79 million in proceeds for what it is, a cash injection that is not earmarked for any specific matter. The immediate effect of receiving the cash is that it will substantially strengthen our balance sheet and accelerated our achievement of net leverage within our targeted range of two to two and a half times. We expect the associated debt reduction to result in an annualized interest expense savings of about $1.1 million. Turning to recent developments related to sustainability. Our strategy is to develop new products across three core pillars, enabling carbon blacks, circular carbon blacks, and renewable carbon blacks. Year-to-date, several developments aligned with these pillars have taken shape, including launching a new renewable product offering, Ecorax Nature. collaborating with the European Commission's Hi-Q CARB battery consortium to design and scale up innovative battery materials, including our high-purity conductive acetylene black, and partnering with the Research Institutes of Sweden to produce carbon black from forest-based products. Each of these efforts and our broader strategy are summarized on slides five and six. I want to salute the efforts of our team year-to-date, not only to deliver impressive financial results, which are important from a short-term perspective, but also to advance our sustainability efforts, which are critical to positioning Orion to thrive longer-term in a lower-carbon world. Using slide six, I would like to elaborate a bit further on how the three recent developments fit into the broader strategy. Regarding enabling carbon black strategic pillar, we developed Ecorax, a family of rubber carbon blacks for tires that have unique properties. It is aimed at extending tire life, lowering rolling resistance, and reducing hysteresis, which collectively reduces fuel consumption, material use, and the CO2 footprint. All of these attributes are aligned with our customers' goals to improve the environmental impact of transportation. regarding the circular carbon black strategic pillar. Our focus is to drive the development of the circular economy for tires. Here we are working to make carbon black from oil derived from used tires. To that end, we are well into a year of working as a partner with the Black Cycle Project that is an EU-funded group led by Michelin working to drive a circular economy and sustainable solutions by recycling end-of-life tires. Our partnership is off to a good start, and we will provide additional updates over time. Finally, with respect to the third pillar, renewable carbon blacks, our focus is reducing consumption of fossil fuels by producing carbon black from renewable feedstocks. We actually started this journey a decade ago with the development of Printex Nature, a carbon black derived from plants aimed at the printing market. More recently, we launched Ecorax Nature, the first highly reinforcing carbon black grade made from renewable feedstocks, which can be used in tire tread construction. The product is currently being tested by customers. Given the development cycle for tires, we expect it to be in testing for 2022 as well. We also announced Recently, our partnership with the Research Institutes of Sweden to develop a carbon black from sustainably harvest forest-based products. As we gain traction in conjunction with these and related initiatives, we will keep you abreast. The main idea is that we expect renewable carbon blacks to play a role in a lower carbon world and look forward to partnering with key players to bring these types of products to fruition. Finally, we recently announced that we have become a part of the European Union-funded HiQ CARB project that was formed to design and scale up innovative battery materials leveraging Orion's high-purity conductive acetylene black. We're excited about this development and that the project organizers chose Orion's acetylene black to develop lithium-ion batteries in Europe. Overall, we've made significant progress with our sustainability efforts, and with these and many other initiatives that you can read about in our recently published 2020 sustainability report that is now available on our website. Turning to our second quarter results in greater detail. As you can see on slide seven, adjusted EBITDA rose to $78.8 million year over year, primarily driven by the sharp broad-based demand recovery across most rubber and specialty applications and geographies, as well as favorable specialty and rubber mix. That concludes my opening remarks. For the remainder of today's call, Lauren and I will cover second quarter results in greater detail and our second half outlook. After our prepared remarks, we'll be happy to take your questions. Lauren?