Orion S.A. Common Shares

Greetings. Welcome to Orion Engineered Carbon's fourth quarter 2021 earnings conference call. At this time, all participants are in listen-only mode. A question and answer session will follow the formal presentation. If anyone today should require operator assistance during the conference, please press star zero from your telephone keypad. Please note, this conference is being recorded. At this time, I'll hand the conference over to Wendy Wilson, Head of Investor Relations and Corporate Communications. Wendy, you may now begin.

Thank you, Operator. Good morning, everyone, and welcome to Orion Engineered Carbon's conference call to discuss our fourth quarter and full year 2021 financial results. I'm Wendy Wilson, Head of Investor Relations. With us today are Corning Painter, Chief Executive Officer, and Bob Rivnak, our Interim Chief Financial Officer. We issued our press release after the market closed yesterday, and we also 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 And our actual results may differ from those described during the call. In addition, all forward-looking statements are made as of today, February 18th. The company does not undertake to update any forward-looking statements based on new circumstances or revised expectations. All non-GAAP financial measures discussed during this call are reconciled to the most directly comparable GAAP measures in the table attached to our press release. With that, I'll turn the call over to Corning Painter.

Thank you, Wendy. Good morning, everyone, and welcome to our earnings conference call. In 2021, we executed an excellent recovery in our business from the previous year with increased demand for our higher margin businesses. Full year adjusted EBITDA was $268.4 million, a year-over-year increase of 34.2%, and our second highest ever, with specialty representing about 55% of it. As expected, fourth quarter results were weaker versus last year, reflecting the Ivanhoe startup and a large number of turnarounds, which limited our ability to take advantage of market conditions. coupled with the global supply chain challenges impacting some customers, as well as higher raw material and logistics costs. Specifically, fourth quarter adjusted EBITDA was $52.3 million, down 20.8% from the fourth quarter of 2020. Beyond delivering solid financial results in 2021, I'm very proud that the team successfully executed on several key initiatives. We reinstated our dividend with an interim payment on January 12, 2022. We completed and commissioned our extensive air emissions control work at our Ivanhoe site. We also completed and commissioned a new reactor line in Ravenna. Finally, we achieved several important product qualifications. A big congratulations to the team on these milestones, which set us up for future success. We have two more air emissions upgrades to complete in the US. I can assure you that they should not be as difficult as the Ivanhoe project was, as we've entered into lump sum turnkey EPC contracts using more traditional technology for both of the remaining sites, significantly de-risking those projects. We are determined to recover the higher operating costs associated with these control projects and to achieve an adequate return on the invested capital. In Ravenna, we started shipping qualification samples to our customers. As we work with our customers through the qualification process, we expect aggressive loading in 2022, which has been included in our guidance. We broke ground at Hua Bay, our first greenfield plant as Orion. Scheduled to ramp in 2023 and 2024 It will produce 65 to 70 kilotons per year of specialty and high-performance carbon black. This greenfield plant, as well as our Ravenna expansion, are key projects to lay the foundation for a substantial increase in our long-range earnings power by contributing roughly $30 to $40 million of adjusted EBITDA at steady state levels, representing an excellent example of the sort of value enhancing investments we intend to make from a capital allocation perspective. We have many attractive growth opportunities on the horizon. Our primary focus is on expanding the capacity of our Kappa line of ultra pure conductive additives. We are one of only a handful of global producers who use high purity gaseous acetylene to make conductive additives. Our CAPA products are in high demand for lithium ion batteries and other applications, and we view this opportunity as a key additional driver for further profitable growth in our conductives business. With approximately $15 to $20 million of EBITDA generated from our conductives business in 2021 and growing to the mid-20s in 2022, we look forward to sharing progress in this area later this year. Turning to slide four, how we address the environmental impact of our operations, the stance we take on social issues, and the governance practices we embrace define our true values and what we are as a business. Within this ESG framework, we have made some notable progress towards a more sustainable future for our customers, the company, our global communities, and our other stakeholders that we serve. Currently, I draw your attention to the first item. Sustainability is core to our growth strategy. This means that we put a focus on connectivity for EVs and on sustainable carbon blacks. For example, in addition to our participation in the Black Cycle Project, where we are working to enable the development of a circular economy by using extracted oil from end-of-life tires as a circular feedstock, We are also working to develop additional processes to replace fossil fuel-based feedstock with renewable oils. We believe there is strong demand for such products. In 2022, we will be expanding our innovation team significantly to support these important efforts. I want to thank the team for their work so far and expect further progress in 2022 and beyond. Turning to our fourth quarter results in greater detail. As you can see on slide five, adjusted EBITDA declined to $52.3 million year-over-year, primarily reflecting our now-completed Ivanhoe startup as well as other major turnarounds in the quarter and supply chain challenges we experienced shipping our high-margin specialty products from AMEA to customers in APEC. Higher raw material costs and energy costs affected results with quarterly average oil prices that increased 50% year over year. Fourth quarter results were also affected by higher fixed costs reflecting higher incentive compensation and maintenance costs due to the heavy turnarounds as we expected. Importantly, we do not expect these factors to persist in 2022. As a matter of fact, we expect the upcoming year's results will be quite strong based on our pricing initiatives in 2021, higher projected volumes based on new qualifications and wins, expanded capacity with our Ravenna startup, as well as fewer turnarounds in the coming year. We're also entering a period of demand that is outstripping global supply growth, and that's an added positive. That concludes my opening remarks. For the remainder of today's call, Bob and I will cover fourth quarter results in greater detail and our outlook for 2022. After our prepared remarks, we'll be happy to take your questions. Bob?