Orion S.A. Common Shares

Greetings and welcome to the Orion SA first quarter 2026 earnings 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, Mr. Chris Katsch, Vice President of Investor Relations. Thank you, sir. You may begin.

Thank you, Michelle. Good morning, everyone. This is Chris Capps, VP of Investor Relations at Orion, and welcome to our conference call to discuss first quarter 2026 results. Joining our call are Corning Painter, Orion's chief executive officer, and John Puckett, our chief financial officer. We issued our first quarter results yesterday after the markets closed, and we have posted a slide presentation to the investor relations portion of our website. We will be referencing this deck during the call. Before we begin, we are 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 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, May 7, 2026. Orion 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 our financial measures required by GAAP. With that, I will turn the call over to Corning. Good morning, and thank you all for joining us. I'll start with a few high-level comments on our first quarter results. Then I want to touch on some of the bigger picture themes because they are directly related to how we're managing the company in these dynamic times. Then I will hand the call over to John to discuss Q1 results in more detail. We'll pour some concluding remarks in Q&A. Starting on slide three, we feel good about our first quarter results. The adjusted EBITDA of $46 million was ahead of our internal expectations. despite a relatively slow start to the quarter. Building from that start, we experienced a favorable progression, with demand improving meaningfully during the month of March. The demand pickup was most pronounced in our specialty segment, with broad-based improvement across most end markets we serve. Notably, demand strength has persisted through April and into May. This gives us confidence to increase our full-year adjusted EBITDA guidance range, which we'll address in a moment in more detail. Naturally, stronger demand may reflect a response to the move in oil prices and uncertainty about future costs. But we also believe the demand uptick reflects a shift in customer preference towards proven, more dependable, and more local regional suppliers because of the concern about extended supply chains. I think it goes without saying just how fluid the landscape has become. Energy prices are one factor, but our broader supply chain uncertainties related to the availability of crude oil and its derivatives being disrupted by the Middle East conflict are also in play. We see these dynamics as creating opportunity for a rise to showcase the inherent resilience of our business the agility of our entire organization most pointedly we believe we are poised to benefit from our footprint which is under index to southeast asia relative to the global carbon black industry our large global customers that have substantial production in western hemisphere should also be positioned to benefit from the current situation in the middle east as middle east and asia-based production is likely to be the most impacted Given the almost daily volatility, I wanted to share how proud I am of the Orion team. Our actions include balancing demand responsiveness with continued judicious inventory management. We have adroitly and proactively been executing pricing actions and purchasing decisions intended to protect margin as well. I have provided the broader context of how to think about this conflict from Orion's perspective on slide four. As you know, 2026 is playing out against a rapidly evolving backdrop. To be certain, periods of geopolitical turbulence can reshape supply chains in precipitous and lasting ways, setting up a new normal. If there is just one takeaway from this slide, it would be how the current backdrop is reinforcing the value of reliable local manufacturing and logistics. In concrete terms, that means having the product in region with more stable raw material and logistic costs. It plays to Orion's supply and manufacturing worker. A couple of other considerations on this slide. We don't mind high oil prices. We've disclosed sensitivities consistently over the years showing Orion's beneficial P&L leverage to higher oil prices. This is a function of the investments that we have made in productivity and process yields which are more valuable at higher feedstock prices. We mentioned how the global supply chain and energy price volatility has boosted demand for our products. Note also, the vast majority of our business is protected by contractual pass-through mechanisms, and these are performing as expected. Our customers generally absorb underlying feedstock cost volatility. Where energy prices are not passed along through forms, For example, in the spot market in China or a bit more than half of our specialty portfolio, we have been actively and successfully implementing price increases and surcharges to offset the higher feedstock costs and protect margin. For the most part, our feedstock availability has not been impacted by the Middle East conflict, largely because we buy in region for regional production. As disclosed in our sensitivities, we do bear some working capital burden when oil prices move higher. John will elaborate more in a moment, but in short, the working capital headwind based on recent oil prices is managed. On slide five, we highlight actions we are taking, flexing our agility to support our customers, protect our business, and create margin opportunity. We have been nimble and responsive to the strengthening in demand, Although not the largest, we do have the industry's most diverse portfolio of reactor process technologies. Against this backdrop, we are able to leverage our plant network to shuffle some production and fulfillment capabilities across our footprint to respond to higher demand trends and capture incremental opportunities at a premium. Given the macro uncertainty, we remain intently focused on company-wide cost reduction On top of the headcount reductions we already have implemented, we are uncovering additional efficiencies through operational excellence initiatives, as well as incremental procurement savings. We remain on track to achieve the previously conveyed $20 million in gross savings, as well as our $90 million full-year capex expectation, which is about $70 million lower than 2025. We mentioned optimizing working capital during our February fall. We now have good visibility on specific pathways focused on inventories, supplier payment terms, and receivables that should collectively unlock at least $30 million of cash from working capital over the course of 2026. We are pressing to find additional levers. On slide six, We view recent tire industry trade flow data as highly encouraged. Notably, the most recent favorable data was before the Middle East conflict even started impacting global supply chains. Many believe that chemical and rubber manufacturing in Asia will be significantly more impacted than in the U.S. and Europe, strengthening demand in these regions. There are a handful of Southeast Asian countries exporting tires to the U.S., but Thailand is by far the largest. As shown in the chart on the left, February monthly tire exports from Thailand to the U.S. were at their lowest level in more than two years, down 19% from last February and down 28% from last year's peak in May. During the 2025 surge, to be newly implemented Section 232 tariffs. Conflict-induced tightness and key synthetic rubber inputs like butadiene and sharply higher other raw material and shipping costs may very well put further pressure on tire exports to the U.S. Exports appear in the import data on a one- to two-month lag basis. But as you can see, in the U.S. tire import graph on the right, pre-conflict February monthly tire import levels declined 9% year over year, already the lowest level in three years. It's worth mentioning several other potential catalysts or indicators for the second half of 2026 and the setup into 2027. First and most important, last week, the European Commission distributed a document outlining its expected definitive findings from its investigation into the dumping of Chinese passenger car and light truck tires into the EU. China is by far the largest exporter of tires into Europe, comprising nearly 80% of the EU's Asian tire imports last year. The proposed duties basically range from 30 to 52%, effective June 18th. Separately, the anti-subsidy investigation there continues. Second, the USMCA trade agreement is scheduled for resetting on July 1st. And third, leading auto and industrial macro indicators have turned positive, with Eurozone and North American PMI readings both exceeding 50 for the last three to four months. These foreshadow demand improvement in our specialty segment and possibly an upward inflection in the freight industry's cyclical trough as well. Fourth, most recent freight tonnage indices have depicted acute strengthening, For example, the March ATA Index, a measure of freight tonnage in the U.S., posted its highest level since 2017. Our recovery in the freight market would bode very well for replacement truck tire demand, as we discussed last quarter. With that, I hand the call over to John.

Thank you, Corning. Slide 7 covers our Q1 results at a high level. Overall, adjusted EBITDA of $46 million was ahead of our internal expectations. thanks to better demand late in the quarter, which drove 2% higher year-over-year volumes. However, adjusted EBITDA was down year-over-year, with essentially the entire bridge attributable to the outcome of our 2026 calendar pricing agreements within our rubber business. Our specialty segment was a bright spot in Q1, with adjusted EBITDA improving 7% year-over-year to $27 million. Broad-based demand strength late in the quarter helped drive 3% higher specialty volumes. Favorable mix contributed to the earnings growth, more than offsetting a fixed cost absorption headwind from an inventory draw, in part reflecting the higher demand. Our rubber segment earnings declined sharply despite higher volumes, but results were generally in line with expectations. In addition to the lower annual contract pricing, the pass-through effects of lower year-over-year oil prices and adverse regional mix were also factors. During the quarter, we had a free cash outflow of 48 million dollars. including a working capital use of $54 million, a function of normal seasonality and the incremental impact from higher oil price volatility in March. Capital expenditures of $36 million were in line with expectations, reflecting some residual spending on growth projects that will taper off over the balance of the year. Slide 8 highlights our specialty segment's results in Q1, including 7% year-over-year adjusted EBITDA growth on 3% better volumes. In addition to favorable mix, foreign currency was a positive contributor to our earnings bridge, helping more than offset an absorption headwind from an inventory draw. Considering that industrial markets overall remain generally soft, we were pleased with the specialty segment's gross profit per ton of $675, which was roughly flat on a sequential basis. Looking forward and based on current order books and customer discussions, we expect late Q1 demand strength will persist through our second quarter, Recovery of demand in China should continue for Orion, where we're making progress in our manufacturing technology improvement at Huawei and ramping profit contribution at the site. In the past few months, we have made excellent progress resolving technical challenges at this facility. More than half of our specialty business operates without contract cost pass-through terms, so this is where a disproportionate amount of our commercial team's energy is focused, executing price increases and surcharges. to mitigate higher feedstock, energy, or logistics costs, and protect margins. We are highly encouraged about the demand strength and near-term outlook and specialties, but I will say our visibility beyond the second quarter is limited. The course and impact of the Middle East conflict is simply not known at this point. We are proactively monitoring order trends in our response to ensure the demand strength is genuine and not situational demand, driven by price increases across the entire chemical chain. Our implied forecast for the second half reflects today's uncertain geopolitical situation. Slide 9 summarizes our Q1 rubber segment results, including the 53% year-over-year decline to $19 million of adjusted EBITDA. Let me reiterate the factors contributing to the bridge, including the annual pricing outcome from our 2026 supply agreements, adverse regional mix, and the pass-through effects associated with lower year-over-year oil prices in Q1 that were down about $10 a barrel. The segment's overall volume improved, including strong year-over-year gains in Asia and modest growth in EMEA, more than offsetting lower volumes in the Americas that was impacted by low tire channel sell-through due to severe weather early in the quarter. On the right side of the slide, we have some forward-looking commentary. Based on current order we see the demand improvement witnessed late in the first quarter continuing through the second quarter. Our contractual pass-through provisions will continue to protect Orion from oil price volatility, even as we continue to proactively optimize feedstock purchases. We expect the Middle East conflict disruption will drive purchasing preferences to local, regional supply chains, which is consistent with our footprint and should benefit Orion. But we have limited visibility into the second half of 2026. On slide 10, you will see that normal seasonality and oil price volatility late in the quarter resulted in a networking capital use of $54 million, leading to an operating cash use of $12 million. After capex of $36 million in Q1, our free cash outflow was $48 million. Net debt ended the quarter at $965 million, resulting in a net leverage ratio of 4.2 times. This ratio is comfortably below what is required in our credit agreement. We ended the quarter with nearly $200 million in liquidity. With that, I will hand the call back to Corning.