Orion S.A. Common Shares

Greetings. Welcome to Orion Engineer Carbon's third quarter 2022 earnings conference call. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. Please note this conference is being recorded. I will now turn the conference over to Wendy Wilson, head of investor relations. Thank you. You may begin.

Thank you, operator. good morning everyone and welcome to orion engineering carbon's conference call to discuss our third quarter 2022 financial results i'm wendy wilson head of investor relations with me today are corning painter chief executive officer and jeff gleick 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 our 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, November 4th. The company is not obligated 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. I'll now turn the call over to Corning Painter.

Thank you, Wendy. Good morning, everyone, and welcome to our earnings conference call. First, a big congratulations to the dedicated Orion team on our third consecutive quarter above $80 million of adjusted EBITDA. If not for exchange rate shifts in the quarter, this would have also been our third consecutive quarter of record adjusted EBITDA. Looking to the fourth quarter, we have lowered our full year guidance to $295 to $310 million, still an increase of 13% over last year. It implies a roughly $55 million adjusted EBITDA for the fourth quarter. This guidance reflects a combination of seasonality and a weaker economy. There's a reasonable chance that customers will take longer holiday shutdowns this year. Next, let's pull back from the daily news and the fourth quarter and take stock of the broader natural gas in Europe. We are ahead of plan in terms of reducing natural gas usage. Last quarter, we laid out sensitivities where there would be no financial impact below a 15% natural gas curtailment. With the progress the team has made, we don't expect a financial impact if gas were curtailed as much as 25 to 30%. Furthermore, if we had to cut 40%, I say the impact would now only be about $2 million per month, which is half the level we shared last quarter. To be clear, however, we do not see that as a likely scenario, as we co-generate electricity at all our European natural gas consuming sites, and we provide district heating at several locations. Beyond all that, we have further trials scheduled as we continue to progress And although we're very coy about gas black, I will share that we do not see our gas black production being impacted. Second, carbon black is an essential material. The majority of it goes into tires, and tires wear out during recessions, too. We think OEM production will improve slightly in 2023, but we're doing well with today's depressed volumes. Specialty volumes will not be immune. But it's not like there's going to be some fundamental shift away from carbon black products in the world. Third, we made substantial progress in the 2023-24 rubber negotiation cycle in terms of price, volume, and payment terms. I say 2023-24 because taking Asia out of the equation, over 50% of our tire volume will be on multi-year contracts. Based on this, we expect rubber gross profit per ton to increase $80 to $100 next year. I don't think there are many companies with this kind of an upside for 2023, which brings me to my fourth point. Our strategy is working. The pathway to a mid-cycle adjusted EBITDA capacity of $500 million is, as you can see, very much in play. The general economy may weaken in 2023, but we expect significantly increased discretionary cash flow and a reduced debt ratio while we stay the course on our growth projects and execute on our share repurchase plan. And when I say increased cash flow, I'm not hoping for lower oil prices. I don't believe in hope as a strategy. I'm saying better cash flow based on profitability closer to what we deserve. Meanwhile, We use any slowdown in the specialty market to improve our offerings there. While in the automotive space, the steady march of electric vehicle penetration will continue in 2023 and provide a tailwind to our conductive additives business. So on to the quarterly results on slide four. Working together, the Orion team delivered another solid quarter following record first half results despite the effects of foreign exchanges. Adjusted EBITDA of $80.5 million was up 21.2% year-over-year, and gross profit per ton of $470.2 was up 12.8% year-over-year. Additionally, adjusted earnings per share is up 12 cents over last year, supported by an increase in pricing and improved mix. Year-over-year, all the metrics were improved, with the exception of EBITDA margin, which reflects the dilution related to higher oil prices and our ability to pass those costs through. With that, I'll turn the call over to Jeff.