Orion S.A. Common Shares

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, 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, Chris Kapsch, Vice President of Investor Relations. Thank you, Chris. You may begin.

Thank you, Devon. Good morning, everyone. This is Chris Kapsch, VP of Investor Relations at Orion. Welcome to our conference call to discuss Third quarter 2024 results. Joining our call today are Corning Painter, Orion's chief executive officer, and Jeff Gleick, our chief financial officer. We issued our three Q earnings results after the market closed yesterday. We have posted slide presentations to the investor relations portion of our website. We will be referencing this deck during the call. Before we begin, I'm obligated to remind you that some of the comments made on today's call are forward-looking statements. are subject to the risks and uncertainties as described in the company's filings with the Securities and Exchange Commission, and our actual results may differ from those described during the call. In addition, all forward-looking statements are made as of today, November 8th. 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 the call are reconciled to the most directly comparable GAAP measures in the tables attached to our press release and the quarterly earnings deck. Any non-GAAP financial measures presented in these materials should not be considered as alternatives to financial measures required by GAAP. I will now turn the call over to Corny Painter.

Good morning, and thank you for taking time to join our call. We genuinely appreciate your interest, and we believe there are many positive things to discuss today. Our agenda includes my discussion of Q3 results at a high level, adjusted guidance in the contributing drivers, the current market backdrop, and then some factors that will contribute to earnings growth next year. And we are encouraged about our prospects for 2025. I'll also touch upon capital spending, free cash flow expectations, and our capital allocation intentions. I'll then turn the call over to Jeff Gleick, who will walk you through our third quarter results in more detail before some concluding remarks and a Q&A session. Starting on slide three of the earnings deck, we delivered adjusted EBITDA of $80 million, a 7% sequential improvement and 4% higher year over year. While pleased with this growth, these metrics do not really put the achievement in the proper context. GP per ton is good. Our production has improved.

Quality is good. The single big thing that is holding us back is rubber segment demand to the war and related energy market uncertainty. activity, in addition to the contractual pricing.

Jeff will get into more detail here later in the call. Now, why we feel good about the underlying operating performance this quarter. The industrial economy softened as this year has progressed, and our customers have signaled a weaker month of December. This is the primary basis for our additional guidance adjustment we conveyed in the earnings release, along with transient headwinds from lower oil price which triggered an inventory revaluation impacting the third quarter. On slide four of the deck, we share some additional color as we conclude 2024. The replacement tire market is the single largest we address, and on the passenger car portion of this space, sell-through units have remained relatively steady. Miles driven is the ultimate driver year. and the miles driven data in Western markets has remained stable. That said, and as we have discussed previously, tire production in our primary markets has been more challenging, lagging sell through for now. The difference here is elevated tire imports. This affects our business because carbon black supply chains tend to be regional. For context, in the North American market, imported tires have historically comprised in the low to meet 50% of the total tire units sold, including passenger car and truck and bus tires. And this year, the trend has been closer to or even north of 60%. We continue to believe this dynamic will normalize over time as the higher value branded tire companies, our customers, those building their tires locally, adjust their marketing strategies to retain market share and shelf space in their channels. to better appeal to consumers who have traded down to lower-value tires. But we're not just hoping this imbalance normalizes. We can also influence and blunt the impact of this headwind through commercial strategy. And the outcome of our approach in this year's negotiations is one of the positive expectations we have for 2025. I'll get to that in a minute. Trade flows are also affected by government policy. And in the case of tires, you may have seen the recent Department of Commerce recommendation that anti-dumping duties be imposed on truck tires imported from Thailand into the U.S. There are more tires imported from Thailand than any other country. Shifting gears a bit, we think investors tend to focus more on passenger car market fundamentals than on the trucking industry. But volumetrically, despite more passenger car tire units, the truck and bus segment is just about as large as the passenger car market in terms of our rubber segment demand. If looking at the freight industry fundamental trends, activity levels are seemingly off of their bottom following the post-COVID boom bus cycle, but they're hardly robust. So we see inevitable recovery in this key end market as another source of upside to our demand looking forward. On slide five, I wanted to share some additional industry color and provide some preliminary commentary on how we're thinking about 2025. We're currently finalizing our 2025 budget, so this is top of mind. From a global vantage, the regions most important to Orion are the Americas and EMEA. Across the pond, the Eurozone manufacturing PMI has been below 50 for more than two years. Despite that, carbon black capacity utilization is expected to be snug less next year. This is primarily a function of the Russian and Belarus bans, coupled with a preference for reliable local supplies. In the Americas, the carbon black demand function has been weaker, impacted by elevated tire imports and the weak U.S. manufacturing sector more generally, as reflected in U.S. PMI. On the supply side of things, We believe the carbon black industry's effective capacity has been crimped over a number of years because of structural factors. There are several reasons for this and we highlight just one in particular, the unintended

consequences associated with the air emission controls in the capacity has been capacity has been reduced by at least 100 to 200 basis points Its emissions will not be a capex burden for Ohio. North American carbon black capacity and it's difficult We feel really good about the outcome. Based on commitments already in place from customers, we anticipate volume for 2025. Devaluing efforts related to some coding upgrades where we have been constrained are largely complete. So that should translate into a rubber segments. So as one market strengthens, it pegs the other rubber segments. So as one market strengthens, it pegs the other rubber segments. duties that the Department of Commerce is marching towards in the truck. Any additional tariffs, should they emerge as an outlier market, any additional tariffs, should they emerge as an to maintenance projects and finishing our specialty acetylene block project in La Porte, Texas. In 2026, for contractual pricing within our rubber segment but all contractual pricing within our rubber segment