Orion S.A. Common Shares

Greetings and welcome to the Orion SA third quarter 2025 earnings 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 that the conference is being recorded. I will now turn the conference over to your host, Chris Katch, Vice President of Investor Relations. Please go ahead.

Thank you, Kerry. Good morning, everyone. This is Chris Katsch, VP of Investor Relations at Orion, and welcome to our conference call to discuss third quarter 2025 earnings results. Joining the call are Corning Painter, Orion's Chief Executive Officer, and Jeff Gleick, our Chief Financial Officer. We issued our third quarter results after the market closed yesterday, and we have posted a slide presentation to the investor relations portion of our website. You'll be referencing this deck during the call. Before we begin, we are again obligated 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 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 5th, 2025. Orion is not obligated to update any forward-looking statements based on these circumstances or revised expectations. All non-GAAP financial measures discussed during this 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. And with that, I will turn the call to Corey Painter.

Good morning. Thank you, Chris, and thank you all for taking the time to join our conference call. Before getting into the Q3 review, I'm excited to announce that we've hired a new CFO, a replacement for Jeff, who previously announced his intention to retire. The formal announcement will be made shortly. We had a strong slate of candidates, both internal and external. We chose a candidate with 30-plus years of financial and business leadership experience, including the past 15 years in the chemical industry. He will start on December 1st. Jeff has agreed to stay with Orion through the end of the year and will be available for further transition support through Q1 2026. In today's call, I'll touch on Q3 results at a very high level, not the performance we expected, and certainly we possess much greater earnings power. Still, there are some constructive points for investors to consider. Then I want to discuss the business environment, including recent headwinds. Cutting to the chase, Our biggest challenge has been soft demand in our key markets. Various specialty end markets are being impacted by global industrial activity malaise, as reflected in soft PMI readings. In our normally resilient rubber segment, and despite solid tire sell-through, tire production in our key markets is down. When compared to what we would consider more normalized levels, tire production in the U.S. is down about 29%, And the decline is 20% across Europe over the same time period, but closer to 35% in Western Europe. While there are reasons to believe demand will inflect positively, we are in no way counting on improved conditions. We are taking action based on the current reality. Accordingly, we're continuing to focus on self-help actions, the things we can control, some significant, that are intended to improve Orion's structural costs and overall competitiveness. I'll discuss more on this shortly. One key goal of these efforts is to ensure the company is generating positive free cash flow should the headwinds persist. I'll then hand the call to Jeff, who will review the third quarter financial results in more detail and discuss our free cash flow, recaparized guidance, and some other items. Then I'll have some concluding remarks before opening up the call to Q&A. On slide three, we broadly touched on the factors contributing to our Q3 performance. Adjusted EBITDA of about $58 million was slightly better than what we had conveyed in our mid-October pre-announcement, but still well below expectations. The largest factors were reduced rubber segment demand in key western regions, soft premium specialty markets, and fixed cost absorption variances across both segments, resulting from inventory control efforts. Because of lower oil prices, we also absorbed another inventory revaluation in the third quarter. Notably, our operating teams again delivered strong plant reliability throughout the third quarter. The sustained improvement in our operating performance is beneficial on a number of fronts. which I'll touch upon in a moment. In our rubber segment, our customers have been feeling pressure from elevated levels of imports. Tire imports, coupled with surplus channel inventories, have affected their production rates, and thus our carbon black demand. Meanwhile, overall industrial activity softness has weighed on our specialty business, and particularly end markets that usually consume our highest margin grades. In terms of the specific impact of this on Orion, remember, we are historically, we've been over-indexed to both Western markets as well as to premium tire makers. While beneficial in prior cycles, this has not been ideal during 2025. But there are signs of change. Tier 1 players are adjusting their strategies to defend share, including more innovation at the higher end, plant modernization efforts, and more vigorously promoting their second-tier brands. The most recent 232 proclamation is another positive. Bigger picture. Western markets have been structurally dependent on tire imports for many years, if not decades, but at like half the tire sell-through at most, not the 70-plus percent from which imports have recently been seen. As the channel rebalances towards a historically more normalized level of imports, we will be very well positioned to benefit from a reversion in demand for our carbon black. In our specialty segment, we have disproportionately deployed resources to drive customer qualifications with some of our newest and most differentiated conductive carbon products, and these efforts are bearing fruit. On this slide, we highlight a couple of qualifications now in place with leading supply chain players in both the high-voltage wire and cable market and the battery energy storage space. Both applications are placed on the strong data center demand growth for power. This conductive portfolio, including our high-period acetylene blacks, is our fastest-growing group of products, and their potential relevance in applications beyond traditional EV batteries is particularly encouraging. On slide four, we share some updated data related to the key tire end market. We surmise the monthly import data for July was not unnoticed, given the volatility this one data point spurred. Unfortunately, this is still the most recent U.S. import data available because of the government shutdown. Parsing this by category, one sees the largest contributor to the July increase was substantially higher truck and bus tire imports, which surged over 50% year over year in the month of July. We point this out because this import surge could reflect an effort by certain exporting countries to beat impending tariffs. Thailand, for example, is the largest exporter of truck and bus tires to the U.S. That country's export data shows tire exports to the U.S. declining in August, the month when the country tariffs went into place for Thailand. Meanwhile, the U.S. just invoked a new 25% Section 232 tariff on diesel truck parts that will unequivocally include truck and bus tires as of November. As Section 232 proclamations are uncontested, they should prove durable. and they supersede any country-specific reciprocal tariffs. In Europe, the tire industry continues to believe that EU's investigation into exports by China into that region will result in an initial finding of dumping in December, with some retroactive implications. Preliminary U.S., Canada, and Mexico negotiations have begun around the U.S.-MCA trade agreement, which is poised for a reset effective July 1, 2026. As a reminder, Canada and Mexico are both net exporters of tires and carbon black to the U.S., and Orion does not have any production in either of these two countries. Finally, we continue to believe the millions of dollars of capital commitments from major tire companies focused on adding net unit capacity and modernizing existing production facilities bodes well for North American fundamentals over the next few years. The implying production capacity growth of 3% through 2030 would be helpful, but their reshoring intentions are more talent. And obviously, the normalization of entire local production rates would be a more substantial driver of an earnings recovery for Orion. On slide five, we highlight actions that we have taken or are taking to navigate the current environment. Three points here. First, while we believe tire manufacturing will rebound, we are not assuming any recovery in our key end markets. Second, to enhance our competitiveness, we're implementing actions to further improve Orion's overall cost structure. Last quarter, we announced three to five underperforming production lines were being rationalized. Those actions will take place by the end of the year. we are looking more creatively at further optimization moves within our production network. Third, we've also reexamined our non-plan headcount, work processes, engagement with outside contractors, consultants, the company's aggregate discretionary spend, amongst other things, and are in the process of further rationalizing costs across the board. Savings from this competitiveness effort will start to build in the current quarter and achieve a run rate savings in mid-2026. We'll share more on the expected benefit when providing next year's guidance in February. In parallel to this competitiveness issue, we're also taking actions that benefit cash flow now. A highlight for sure is the sustained improvement in our overall plant operating performance. This helps on a number of fronts. In addition to improved on-time customer service levels, better quality, and reduced scrap, We're also able to comfortably run our business with lower inventory levels, which in turn unlocks working capital. You can see the progress here in the past two quarters, and we expect a strong seasonal Q4 release, including but not limited to receivables, which should enable working capital to be a source of cash by approximately $50 million in 2025. The improved operating performance error plan reflects our organization's focused efforts on this front, but it's also a function of our having worked down a backlog of previously deferred maintenance projects. With the improved operating performance and with three to five fewer lines competing for maintenance capital, we'll be able to further prioritize our maintenance spending and focus that spend on projects that ensure reliability at our most important production sites. This all feeds into our conviction around free cash flow generation despite the decline in EBITDA. Jeff will touch upon cash flow in more detail after his Q3 review. With that, I'll turn the call over to Jeff.