Orion S.A. Common Shares

Welcome to Orion SA Full Year 2023 Financial Results Conference Call. At this time, all participants are in a listen-only mode. A brief 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. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Wendy Wilson, Head of Investor Relations. Thank you, Ms. Wilson. You may begin.

Thank you, Ranju. Good morning, everyone, and welcome to Orion's conference call to discuss our 2023 financial results. I'm Wendy Wilson, Head of Investor Relations. With me today are Corning Painter, Chief Executive Officer, and Jeff Gleit, 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 15, 2024. 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 here press release. I'll now turn the call over to Corny Painter.

Thank you, Wendy. Good morning, everyone, and thank you for joining our call today. In 2023, we delivered another year of record-adjusted EBITDA, our third year of growth. As good as that is, we are not satisfied. If demand had not cooled off over the year, our results could have been in line with or even beaten our initial guidance. When Jeff takes you through the EBITDA waterfall on slide nine, you'll see just how impactful the 2023 contract round was and how the slowing underlying markets impacted us. The good news is, as we predicted, we achieved our goals for the 2024 rubber pricing cycle, despite relatively weak demand in our key markets. I believe this sets us up well for the 2025 cycle, which will be negotiated later this year. Our customers remain cautious about 2024 volume, and our guidance reflects that. I'll explain more about that later on the call. Focusing on 2023 and consistent with our pre-release commentary From our January 22nd press release, full-year adjusted EBITDA was $332 million, and adjusted diluted EPS came in at $1.92. We also delivered strong operating cash flow and strengthened our balance sheet. We returned $1.10 per share to shareholders by repurchasing stock. We also lowered our debt by $1.30 per share, or $78 million. This reduced our net leverage to 2.35 times EBITDA, down from three times EBITDA just 18 months ago. On the operations front, we completed our final air emission upgrade project in the U.S. It is hard to express how big this is for Orion. A huge thank you to our engineering and operations team. Well done. This now allows us to focus our capital allocation to growth, debt reduction, and returning value to our shareholders. I see capital allocation as my top responsibility after safety. Beyond the implications for capital allocation, completing the air emissions work means we can just shift more of our effort to reliability, productivity, and quality. As you'll see later in our presentation, we are also confirming our 2025 mid-cycle earnings capacity goal. While we'll need something more like the pre-COVID market conditions to more fully load that capacity, we believe the path is clear and achievable. Jeff will review this later in the call. There are so many more highlights to 2023 beyond those we featured in our slides today. For example, we've completed a number of steps in our journey to advance our sustainability goals. We achieved our 2022 emissions target in the U.S. and received a 10 basis points rate reduction in our interest payments on our sustainability-linked term loan. If you recall, Orion agreed to the seven-year $650 million term loan in 2021, and we were one of the first companies to link the loan to environmental goals. If we meet our targets for all four years, we could reduce our financing costs by a total of $2.6 million. We introduced Kappa 10, a new conductive carbon aimed at batteries with more of a cost-based value proposition. We believe this product is well-positioned for that portion of the market. We were also selected for a 6.4 million euro grant from the German government and the European Union. further develop and demonstrate a climate-neutral process for producing carbon black from alternative carbon sources. We have already shown that we can make a wide range of carbon black raids with bio-circular raw materials, backed up. The challenge is now to improve efficiency to make these more cost-competitive. That's what this funding will help with. We believe there is strong demand for these materials as we make them more cost-effective. Also, in 2023, we secured international sustainability and carbon certification for our flagship specialty plant in Cologne. It's not just the tire customers who want to build a circular economy, and this will help us to support specialty customers with sustainable and traceable carbon black. It also means we now lead the industry with a number of certified carbon black production sites. All of these achievements advance sustainability as a business model. Looking at our two business units, specialty demand, reflecting weak broader market conditions, continues to be subdued. We are using this as an opportunity to push new customer qualifications, upgrade our plants, and introduce new products like Kappa 10 to the market. We have achieved a number of recent wins in the battery, wiring cable, and coatings market. We've also achieved several technical milestones related to the ongoing deep bottlenecking of our high-performance surface-treated braids. In addition to the financial benefits of this, these successes allow us to better support our customers' growth plans and allows them to build us into new formulations with confidence. In the rubber business, we successfully completed our negotiations for 2024 per plan That we gained volumes in Europe should be no surprise at all with the coming ban on Russian carbon black. Importantly, we raised prices on top of last year's step-year step change. We did this in the face of relatively weak demand and outlook from our customers and at a time of some painful actions in the tire industry. We succeeded for several reasons. First, the industry has restructured. Tire capacity has grown in our key markets carbon black capacity has not. In North America, devaluecking has been offset by a plant closure, and the European Union, the investment entire capacity, beyond the investment entire capacity, there's the Russian ban coming this June. The changes that we're seeing in the long-term trade patterns are amplifying the importance of local production. There have been some recent announcements of capacity additions in other markets, but not in North America or in Europe, or in other countries where we manufacture. Second, we naturally need to earn a return on investment on our compliance investments, but also on our investments to renew our plants. By stepping up our maintenance and replacing end-of-life equipment, we improve our plant uptime and add effective capacity that our customers need for their continued growth. That investment warrants a return as well. Third, the industry wants sustainable offers. The investments we make, people, R&D, and supply chain to make this happen demand a return. All that is only fair to Orion, the people who work in our plants, and to you, our investors. Slide four is a good visual representation of our growing profitability. This is our third consecutive year of adjusted EBITDA growth, and based on our current guidance for 2024, this trend should continue. This also reflects how special our market space is. There are not many chemical or materials companies who had a record 2023, and we expect to set a new record this year. We're in a niche space with very attractive industry restructuring. The completion of the U.S. Air Emissions work, which was a burden, is another structural positive for us going forward. Despite those U.S. Air Emission projects, our ROCE has stabilized at a level well above our cost of capital It is great to have that spending behind us. With that, I would ask Jeff to provide additional insights into our financial results and long-term goals.