Greetings, and welcome to the Orion SA Second Quarter 2023 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. 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, ma'am, you may begin.

Thank you, Kyle. Good morning, everyone. And welcome to Orion's conference call to discuss our second quarter 2023 financial results. I'm Wendy Wilson, Head of Investor Relations. We have Corning Painter, Chief Executive Officer, and Jeff Glajch, Chief Financial Officer, with us today. 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 risks and uncertainties as described in the company's filings with the SEC, and our actual results may differ from those described during our call. In addition, all forward-looking statements are made as of today, August 10. 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 will now turn the call over to Corning Painter.

Thank you, Wendy. Good morning, everyone and welcome to our earnings conference call. As you can see on Slide 3, we had another excellent quarter, second only to the first quarter, naturally making for record first half performance. Our results reflect the hard work of the Orion team to fundamentally transform the company, providing industry-leading products, customer demand, and returns on investment that investors deserve. We've been supported in this by restructuring in the broader marketplace that has been building for years in our key markets, which has now passed the tipping point and continues to build. We continue to be one of the few specialty chemical companies on track for a stronger 2023 compared to 2022. We expect record profitability this year. We delivered second quarter adjusted EBITDA of approximately $87 million, a 5% increase year on year, and adjusted diluted earnings per share of $0.53. This resulted in record adjusted EBITDA of approximately $188 million for the first half, a 13% increase year on year, and record adjusted diluted earnings per share of $1.27. We also delivered strong second quarter operating cash flow, reduced our debt level, while also completing our $50 million share buyback and starting on the new buyback. We expect to generate more than $200 million of discretionary cash flow this year, reflecting a conversion rate of over 60%. This is a huge step up for us, which we expect to maintain. Jeff will discuss this further. As you have seen, we recently published our 2022 Sustainability Report. I highly recommend that you take the time to read it; sustainability is central to our strategy. In specialty, this manifests in conductive additives and in rubber as a circular economy. A concrete example of this is our acetylene-based conductive carbon. They are ultra-clean, highly conductive, and are produced from the limited availability of high volume clean acetylene gas streams. We continue to make progress on the construction of our acetylene-based conductive additive plant in La Porte. Beyond that, we expect to add additional capacity in North America and Europe, coming on stream in the next three to five years. Congratulations to the entire team who is bringing our strategy to fruition, as we continue to operate as a responsible corporate citizen to all stakeholders. On the operations front, specialty demand, reflecting the broader manufacturing economy, is strong. We see this as an opportunity to push customer qualifications and upgrade our plants while things are slow. Meanwhile, we have preserved the underlying value of our business by maintaining end segment per ton profitability. In rubber, as I mentioned earlier, we believe the industry restructuring is evident in our results that will continue. The situation is simple. Industry supply dynamics, coupled with our commitment to getting a return on invested capital that we, as a company, and you, as shareholders, deserve, are driving the reset to more balanced pricing. 2024 negotiations are well underway; we currently have about 60% of our Americas demand committed or in late-stage negotiations, well ahead of past schedules. The pricing outlook remains positive for 2024. We expect to pick up volume at our price points. A couple of items. First, I remind you we're negotiating for 2024 and beyond, not for 2023. I care about slow demand in 2023 in this context, except that one year's deferred demand is the next year's supplemental demand. And that supplemental demand further tightens the market that we are actually negotiating for. Second, there is a growing carbon black imbalance in our key markets as tire capacity continues to be at risk. Third, the EU ban of Russian carbon black starting next July, combined with the growing OEM concern with Russian content in their supply chain, further benefits European carbon black producers. Fourth, our investments in maintenance, emission controls, and reliability and abatement costs all demand higher prices. And fifth, the expected rebound in replacement tire demand is a tailwind. These five largely structural improvements in our markets are positive drivers for us. Beyond all that, customers want strong, healthy suppliers. Thinking of abatement, we are the only carbon black producer to have completed three air emission control projects in the United States. We have one more planned to go, which we expect to have behind us entering 2024. Now let's talk about the de-stocking and deferring, starting with rubber. We supply tire manufacturers; they supply tire dealers and large tire retailers. Eventually, a tire retailer sells to the end customer, who is the most important player here. On the bottom of Slide 4 you can see the passenger car and light truck owners are driving more than last year. On the top of the slide, you can see their deferred buying of replacement tires. I use the term deferring because those tires are getting worn and they will need to be replaced. Just look at the gas and miles driven. Trucking companies are seeing a decline in loads and hence are buying fewer replacement tires; that makes sense. Going forward, you should look at manufacturing PMI to get an understanding of where that is headed. Now all this is based on U.S. data; we don’t have good fast data like gasoline or miles or kilometers driven in Europe. However, we believe the picture there is similar. There's also the question of inventory levels; tire manufacturers, distributors, and dealers each keep. There’s less visibility here. However, our understanding is that inventories are relatively low and there's little interest in restocking correctly until end customer demand picks up. On top of this, our customers express limited confidence in their demand forecast accuracy. Switching to specialty, here we serve dozens of end markets. In general, customers want low inventories and by and large, they add them. But again, there’s little interest in restocking. For both rubber and specialty, we expect end customers to defer purchases until the start of 2024 and manufacturers to take extended holidays this summer and winter. We, in turn, will use this time wisely, preparing for 2024 and not destroy value by chasing volume. With that, Jeff, perhaps you could provide some more color on our financial results.

Thank you, Corning. On Slide 5, you can see the continued path of growing profitability, even with the headwinds in our end markets. In 2023, we expect at the midpoint to grow EBIT by 7% versus the full year 2022. And while not shown here, EPS is expected to grow by 9%. Our portfolio is a combination of the rubber business, which is benefiting from price increases that have more than offset the near-term volume challenges, and our specialty business, which has kept stable pricing with its high value-add products. Specialty, too, is facing near-term volume headwinds. But the 50% plus growth in rubber EBITDA in Q2 and in the first half of 2023 has allowed us to deliver respectable earnings growth. Below, you can see our continued ROCE progress over the past few years during a time we have made substantial air emission control investments. The ROCE level we achieved is significantly in excess of our weighted average cost of capital. ROCE stands at 17%. This key metric keeps us aligned with our shareholders as stewards of their capital and focusing on the long-term sustainability of the company. Now some more details. On Slide 6, our consolidated results for the second quarter. The contractual price improvements in rubber outweigh the lower volumes in both businesses as well as lower cogeneration revenue. The year-over-year adjusted EBITDA increase of 5% in the second quarter and the 13% increase in the first six months of 2023 are a direct result of better pricing in rubber. You may note that the adjusted EBITDA is down in the second quarter despite the increase in adjusted EPS. This is a combination of the higher tax rate in the quarter and a couple of adjustment items to net income, which went opposite to last year. Slide 7 provides the year-to-date results for the first half of 2023. Adjusted EBITDA is up $22 million, or 13%, and adjusted net income and adjusted diluted EPS are both up 10%. All three of these are record levels for six months. We achieved this despite a 50% drop in European power rates, which, based on what we shared last quarter, has about a $25 million annual impact. If rates hold where they are now, we expect an additional $2 million to $3 million per quarter impact next year when certain hedges that we put in place for 2023 expire. We do expect reduced power price and co-gen volatility going forward. On Slide 8, the improvement in rubber pricing fully offset the volume decline in Q2. Our view is that the price improvements in rubber are due to a structural shift in the markets, while the volume declines will reverse next year. On Slide 9, looking at specialty in Q2, volumes decreased in most markets, reflecting weakness in the manufacturing sector. Gross profit per ton decreased compared with an extraordinary Q2 level last year. Our trailing 12-month gross profit per ton is also down but above our average levels in 2022, and in the $800 to $900 per ton range we have previously discussed. We do not view this quarter's gross profit per ton negatively, but rather it is near the expected range for this business. Importantly, for the mix of products that we sold in the quarter, our pricing remained stable. We have not chased volume by dropping prices. Slide 10 shows the key factors affecting adjusted EBITDA for the specialty business compared with last year. As noted earlier, the volume reduction was significant, margins were affected by fixed cost absorption and lower cogeneration revenue. But as I noted on the last slide, pricing was stable for us despite the market conditions. We believe this reflects the strength of our value proposition. Turning to Slide 11, the headline is that Q2 rubber EBITDA was up $19 million, or 51%, and the first half EBITDA was up $43 million, or 54%. The price improvements were generating strong profitability metrics despite lower volume and lower oil prices. Gross profit per ton was up from $309 to $429 in the quarter, driven by price improvements. You should expect the gross profit per ton to be at similar levels for the remainder of 2023. Slide 12 looks at the key factors affecting adjusted EBITDA for the rubber business. Strong base price is clearly the key driver offsetting lower volume and less advantageous geographic mix. For clarification, we gained volume in lower margin regions, while we saw decreased volume in higher margin regions. On Slide 13, I'd like to provide an update on cash flow and the impact on our debt level and stock buyback. With strong cash flow in the first half, we funded $20 million in share buybacks in the quarter, $49 million year-to-date, and $54 million since we started our buyback program in Q4 2022. This represents 4% of outstanding shares. As discussed during our Q1 call, as expected, we completed our initial $50 million share buyback program in mid-May. We purchased an additional $4 million in shares toward our new buyback program in the rest of the quarter. We will pace the new buyback program slower and prioritize growth and profit-enhancing projects first. As long as we stay in or near our target debt range, we plan to continue to look to opportunistically repurchase shares with a portion of our free cash flow. We reduced our net debt an additional $39 million in Q2, and $76 million in the first half of 2023 to $783 million. Our debt-to-EBITDA ratio now stands at 2.34 times, down from 2.75 times in December, and nearly three times at this point last year. As I look forward across the rest of 2023, I expect our debt level will stay near where it is now and may increase a little since our CapEx is backend-loaded in 2023. We benefited from lower CapEx in the first half of the year. On Slide 14, before I pass the call back to Corning, you can see the dramatic increase in our discretionary cash flow conversion as we have stepped up our profitability and nearly completed our EPA projects. This gives us much more flexibility to invest in growth projects, reduce our debt, and opportunistically buy back shares. I expect the 60% plus conversion rate that we have in 2023 to continue in the coming years. With that, I'll turn the call back to Corning to discuss our 2023 guidance.

Thanks, Jeff. Turning to Slide 15. As we both said earlier, we continue to believe we will record another record year. We also believe that we're in a strong position going into 2024 with about 60% of our Americas and EMEA rubber demand already essentially committed. For this year, we expect any customer purchase deferral and destocking to continue into Q3 and Q4. We also expect the lower power prices in Europe to continue to prevail. Taking that into consideration, we are updating our adjusted EBITDA guidance to the $320 million to $350 million range, which is up over 7% at the midpoint. Our adjusted EPS guidance range is $2 to $2.25 per share, and up 9% year-over-year at the midpoint. In closing, I would remind you that first, our specialty businesses are doing well. Naturally, volumes are down when manufacturing activity is down. However, our unit margin, reflecting the strength of our business, is holding at high levels. Meanwhile, we're driving our future growth by progressing our conductive additive plant in La Porte and advancing customer qualifications across many markets. Second, we believe the step up in our rubber pricing is necessary and at a sustainable level from which we will grow. Third, the current disconnect between miles driven, gasoline consumption, and replacement tires is not sustainable. Those tires will need to be replaced. Also, the OEM market, which drives our higher margins, specialty and MRG businesses, has begun its recovery. Fourth, with higher profitability and the U.S. air emissions spending nearly behind us, our cash flow conversion has improved dramatically. I continue to see a great future for Orion as a company and as an investment. The steps we have taken and the strategy we have embarked upon provide a great foundation for sustained profitable growth, free cash flow, and exceptional returns for our shareholders. Thank you. Kyle, please open the line for questions.

Thank you. We will now be conducting a question-and-answer session. Our first question comes from Chris Kapsch with Loop Capital Markets LLC. Please go ahead.

Hey, thanks. Good morning. So thank you for the details around the characterizing the ongoing tire contract negotiations for next year. Could you remind us like what percentage of your existing contracts already had multi-year agreements in place where there was already an increment in pricing baked in for next year or beyond? And curious about the agreements that are being resolved now. How does the magnitude of pricing that you alluded to compare to those that have already been baked into the multi-year deals? And if there's any way to characterize this by geography, that'd be helpful too?

Hi, Chris. So first of all, thanks for your question. Appreciate it. So we had about 50% of our volume under contract going into it. As you said, we had a step up in those contracts going from '23 to '24. I expect that we will do better than that with the new contracts that we signed this year. It's early days, but that's my expectation. And I'm okay with that because I think it's a better allocation of risk getting commitments between the companies, and we're prepared to do that sort of thing. I think that's a good development overall for the industry. I'd say, in general, there's more interest for people to get the contract quickly in Europe right now compared to North America or South America, just because of the upset there with the Russian capacity, which was probably about 35% of that market. Some customers estimated that as much as half of their carbon black was coming from Russia. So there's certainly some people who are quite interested in that. Did I miss anything there, Chris?

No, that covers it. That's helpful. And then the follow-up would be, no, I like the way you characterized the current destocking presumably represents deferred or latent demand, incremental demand for next year. So assuming that this de-stocking runs its course, let's just say by calendar year, and then there's normalization in demand trends next year. Is there any way to characterize what you think the industry capacity utilization rates would be by region in sort of the core rubber black and specialty area? Thank you.

Sure. So just to clarify, I think it’s not one day whenever a customer decides, okay, I'm going to stop deferring. I think we’ll see that turning in the fourth quarter. I don't think we, as the company, will see the impact of that until January, just because in the fourth quarter, you've got holiday shutdowns and that kind of thing. I think it's that kind of a timeframe — a relatively long deferral. What I think that means for us going forward is rubber capacity in Europe will be at very high levels. That will be basically where people can operate at. So I would say high-80s, low-90s. I think North America will also be at very high levels of industry utilization again, just because of supply and demand. We can get back to a more normal run-rate in demand. I think capacity in both areas will be tight. We will have our EPA work behind us. At least one major competitor will not; so when they go through it, that will probably have an impact on demand or capacity for North America next year.

Helpful, thank you.

Our next question comes from Jon Tanwanteng with CJS Securities. Please go ahead.

Hi, thanks for taking my question. I was wondering if you could give us a little bit more color on the inventories that your customers have, compared to where they would normally be in this kind of demand environment and how long they can actually keep drawing down before they reach critical levels or levels that put their business at risk. Have your customers actually told you that they're specifically drawing down? Or is that just more research on your end based on what you're seeing in the market? Just help us get more clarity on what's giving you the confidence that things will come back and kind of when they will?

Sure. So two things there. Number one is, of course, cutting across many different customers in specialty, and many, many in rubber, let's say many. Those customers don't always express tremendous confidence in exactly what is in all the downstream channel. So I know everybody's interested in this question of destocking. I’ll just tell you, I think end customer demand and the deferring there, which you can see in that gasoline and miles driven versus replacement tires, I really think that's the best data we have. So now, more anecdotally, when you talk to these guys, they talk about, yes, we're at a very low inventory level. If end customer demand dropped lower, then that might be a little bit more inventory than they think they need, and they might be able to draw that down. If it steps up a little bit, they would have to buy a little bit more. I think they're at low levels; I will never tell you it can’t get worse. So they couldn’t destock more. But our view is, when we talk to these guys, they all express, they unanimously express that they're at low inventory levels but are very reluctant to make a step up in inventory. The one thing we may see this month is, with the rise of oil prices, we may see some people buying in front of that in specialty. Okay, that’ll help August or September, I don’t see that as very significant.

Okay. Got it. And then, as your customers get down to these critical inventory levels, assuming demand stays roughly where it is, I mean, how much leverage does that create on pricing for you as you enter the New Year? I know tire contracts are generally negotiated for ahead of time, but in the rest of your business, wouldn't that give you a lot better leverage as you enter the New Year, especially if capacity remains limited and you guys start to restock?

Well, Jon, the way this game works is, the buyers right now are saying, demands you need to load, you need to give me a good price. And we're saying, yeah, no, no, no, no, we're not negotiating for 2023. We're negotiating for 2024. That's an obvious thing in the annual cycle for rubber. But it plays out in specialty as well. But the key point here is in specialty, we're selling value. We're selling a solution. So we're not looking to take advantage of the market conditions nor be a victim, right? We're looking to keep a fair price in our specialty and move it up where we need to and get our new products qualified, and basically be agnostic to the current market conditions. But yeah, I mean, I think to an intelligent buyer, they can see what's going to happen next year.

Okay, great. And then just one more thing, can you just break out the impact of cogeneration? What has been your expectation? And what has been the change there in the outlook for that piece of the business?

Sure, I can let Jeff go more. But just to say, when we gave our last guidance right at the end of Q1, we were really looking at what power rates were at that time. We expected them to just stay where they are, thought that they might actually pick up a bit this summer in Europe, which has not happened. I think it was in my part of the script last quarter when I said that for every move of about 20%, it would be about $10 million. And it’s moved about 50% down. So that's how you get to an annual run-rate of $25 million that Jeff mentioned. But, Jeff, anything you want to add to that?

Sure. Jon, yeah to Corning's points, the 50% reduction in power prices would get you to somewhere in the $25 million range from a profitability standpoint. If you look right now in the key markets, I think if you were looking at Germany, it's down about 50%, perhaps year-over-year. If you look in Italy, it's down closer to 40%. There's not been a step up in summertime, even though it's very hot there. As the year goes on, we're expecting this lower level to remain which is lower than what our expectations had been three or four months ago. So we had a little bit of impact in the first quarter, a bit more in the second quarter, and expect the bigger impact in the third and fourth quarter if these levels remain where they're at.

And just to give you my note. This is a net positive for everybody. It's going to mean the European’s fuel economy is stronger. It’s ultimately going to help consumer demand in Europe. One of the things to understand is that we did hedge last year; congratulations to our energy team, it was very good timing. Those hedges will extend and expire at the end of this calendar year. So that's going to give us a headwind next year of about $10 million.

Great, thanks, guys. I'll jump back in queue. Thank you.

Our next question comes from John Roberts with Credit Suisse. Please go ahead.

Thank you. Slide 10 has the year-over-year bridge for the specialty chemical EBITDA. If you're going to build that slide on a sequential quarterly basis, what would it look like? The volumes were actually relatively flat sequentially.

Yeah, so I would have to take a quick look at that. I think that our price mix has not shifted dramatically between quarter-on-quarter volume. Jeff, how do we look quarter on quarter?

I think volume might be down a little bit versus last quarter.

It stayed on the right-hand column to give the quarter-on-quarter perspective.

I'm sorry, I'm looking at Slide 9. Different counter slides about it. So I'm sorry, your question then with comparing these two, what in particular would you want?

Yeah, sequential decline? Because volume was stable. Sounds like price was mixed significantly negative sequentially.

Yeah, the mix was down. As we talked about the cogeneration piece that hits a specialty pretty significantly. And with a lower volume, there was a little bit more fixed cost absorption. So you kind of throw it all in a basket. You can see really, it's a gross profit line.

Plus, we shared last time that $101 million of EBITDA benefited from some one-time and timing effects. A lot of that was in specialty that's partially how the GP per ton was so high in specialty in Q1. So just the absence of those things is going to take the profit quarter on quarter down a little bit as well.

Okay. And then how are your China operations doing?

So we were volume positive there; we’re at the startup of a new plant. I think China is a weak market now, that is for sure. I think one thing to keep in mind for us is that on rubber, we are like 100 KT, a 4,000-5,000 market volume market. So for us to find ways to place our product was maybe a little bit easier than other folks. We're very busy with the startup and everything associated with that. But otherwise, tough market, but we're fighting it out.

Our next question comes from Josh Spector with UBS. Please go ahead.

Yeah. Hi, thanks for taking my question. First, I want to make sure I understand the cadence through the rest of the year correctly, and how you're thinking about the moving pieces. I guess from what I've heard so far, it seems like maybe there’s a $5 million sequential step down because of the co-gen energy dynamic. Seems like demand sounds stable-ish at these lower levels. So maybe you're in the low-80s range for Q3, Q4 typically is 10% lower or so? I mean, that gets me roughly to the high end-ish of your guidance. I guess what else would be the moving parts in their volume or otherwise to consider?

So, I'll just make a couple of general comments. And I'll let Jeff jump in with specifics for you on it. But I would also just say, we and a competitor both mid-quarter made some announcements about how we saw volume. It is a fairly dynamic time. I think the industry, meaning the tire guys were surprised, for example, about the trucking volumes. And just as we had some positive things happen in Q1, these things can balance themselves out over time. But Jeff?

Sure. Josh, I think your thought process on Q3 is probably not too far off. I think about Q4, typically you see some shutdowns by our customers. And as Corning mentioned earlier, the thought is perhaps some shutdowns may be a little longer than normal. I think that’s probably a meaningful impact. If I think about, if you look at last year's Q4, one way to look at our guidance would suggest that Q3 and Q4 are in line with what Q3 and Q4 looked like last year. Obviously, we get the benefit of rubber pricing, but as you mentioned, the impact on cogeneration and perhaps we've got a view on volume. We typically do see a drop-off in Q4. Our thought process is, with the dynamics going out of the market and our customers staying in lower inventory levels, we could see a similar kind of drop-off in Q4 of 2023 than perhaps we saw in Q4 2022.

Okay, that makes sense. And just maybe a little bit near-term and long-term, I guess, your competitor talked about some more pressure within some of the conductive carbon market pricing and demand. I'm curious if you could describe what you're seeing in your black demand and pricing at the moment. I also noticed you trimmed some of your growth CapEx. I don’t know if you’re delaying anything there or just timing of some of those investments. Just curious on the driver there. Thanks.

Yeah, hi. No, the change in our capital is more around execution and looking at certain projects and where we are on the timing for them. We continue to advance the acetylene project. We also would agree that China is a more challenging market; there is some differentiation of different materials used in different kinds of batteries and so forth. What I’d add to that is, we also see that as an opportunity. For the LSP, we're also looking at some other products that are better priced for that market and for their needs and the price points that they work out at. So given our overall size in this market, we see that as basically an opportunity for us, and one that gives us the ability to have multiple tiers of offerings going forward.

Okay, thank you.

Our next question comes from Laurence Alexander with Jefferies. Please go ahead.

Hi, this is Dan on for Lawrence. You mentioned that the rubber black supply-demand tightness. I was wondering if you would consider adding either brownfield or Greenfield capacity and if not, what would have to change to kind of make that viable?

Sure. When you think about making an investment, you have to think about return on capital, which means you have to think about what’s the right hurdle rate. And that means you have to think about what’s the business model. The current business model, or most customers do a short-term contract. And by that, I mean one to three years. And all right, it’s a little bit longer now than it used to be, but still very few are more than one to three years. I think that puts you in a certain risk position around adding capacity. So we would really be looking for more of a longer-term mutual commitment between the two parties. That would just give us more surety. And with that surety, of course, we’d be willing to accept a lower hurdle rate. Personally, I think that is the way forward for this industry, and we’ll see if we can move in that direction.

So I think we could describe it as something more akin to what we've seen in industrial gases where there’s a, I don't know, a 10-year commitment and kind of co-building that, is that what we’re probably thinking about?

Yeah, yeah. I come from the industrial gas industry. I think there are two business models there — there's dedicated capacity, which tends to have a 10-year agreement. There's also more of a merchant approach, which is more like five years. There’s a little more flexibility. I think something in those areas is what could make sense to add capacity. That’s our view of it.

Okay. And there’s one more question. I think you mentioned adding new capacity in carbon additives in Europe. I was wondering if, I don’t know, just the fluctuations in energy costs maybe having to rethink that, that building in that region would be better, or maybe it’s better to export into the region?

So let’s be clear, we said that in the next three to five years, we see ourselves adding capacity in North America and in Europe. I think those will be growing markets. There’s already a pretty large market in China. I think that we’re going to see Giga fabs of batteries become more democratic, so to speak, and spread out geographically. And there’s all these things about geopolitical concerns about trade and everything else. So we think there’s going to be demand in each space. Based on that, we will be interested in being there. But remind you, we’re typically using a byproduct for not making our carbon black, I’m sorry, our assembling conductive material. So that's something that we would look to see how that balances out. But to be clear, if there isn’t a good return on investment, we will not do that.

Thank you very much.

Our next question comes from Jeff Zekauskas with JPMorgan. Please go ahead.

Good morning. In the rubber black area, you said that 60% of your contracts for next year were in good shape or signed. Is that all Europe, or is that large number really reflecting the European market?

So let’s just be clear, that is EMEA and the Americas combined?

Right. But if you strip it out, how much is in the Americas and how much is in EMEA? Because they’re very different markets? No?

I think for us, though, the percent contract is going to be similar; maybe it’s a little bit higher in EMEA right now, just because people are going a little more quickly on that. But when we ended last year with about half of our volume committed, that was the ratio we chose to take. So that was pretty well split between Americas and EMEA.

So in listening to what all the different companies that make carbon black say, some companies point to a more contentious price negotiation. Are your carbon black prices simply lower in rubber black than some of your competitors, historically? And so you have more room to raise your prices. Is that a fair characterization?

So I don't know exactly what my competitors' prices are. The only feedback we get on that is from our customers, who are, of course, very likely to lay out the scenario you just said, Jeff. So I have no idea what their pricing is, what their pricing policy is, or anything else. I’d say the situation is a little bit like, let’s imagine there’s an airline route. And there are only, let's imagine, I don’t know, there are 550 people who want seats, and across the various airlines, there are only 500 seats. That’s kind of how Europe is; it’s kind of how North America is. So if someone's going to offer free tickets out there selling seats at a real discount, it doesn't matter because right, you can fill up his airplane; you can’t like lease a new plane. It’s not like the airline business vs our business. And then what’s left is left; it’s just a fact. I think it’s also important to know that I don’t think our prices or the industry prices are that high. People are getting to return on capital pricing. This is where pricing needs to be. This is why that plant closed in North America, in my opinion. This is why this company closed in 2016. When I joined this company in 2018 and I did my first round out there with customers, people were giving me very harsh words about why Orion had closed this plant in France two years ago. But why? It’s because the pricing was too low, and people were buying from Russia, so we’re just kind of like getting back to a balanced place in my view. I don’t think it is extraordinarily high or anything else.

I guess finally, can you talk about the trends in specialty pricing? And where they're going, are they moving lower, are they moving higher? And what the future of those returns is?

So we work hard for our end markets to have a value proposition in those places. And yet prices can move up and down with different impacts from energy and other costs among them. But we're not looking to fundamentally say, what we get in coatings isn't a high enough return for us. I think our view is that during this time when demand is soft, we’re not chasing volume by lowering price. So then when the market turns and the volume comes back, like, your business is damaged; it is not as good as it once was. Our view is that we are providing value, we are providing a solution to our customers, and we should maintain the unit price in that space. You are still going to see fluctuation in our overall GP per ton on mix on things like power, but our view is the value of this product is not diminished simply because demand is a little slower right now.

Okay, great. Thank you so much.

Next question is a follow-up from Jon Tanwanteng with CJS Securities. Please go ahead.

Hi, I was just wondering if you could give a little bit more color on your plans for the buyback. I think you said you’re going to be a little bit more measured and less aggressive, compared to the $50 million that you’ve already spent. But if share prices go lower, I mean, how does that rank compared to the other uses of cash that you’re considering with debt pay down, your investments, and future CapEx as well?

Hey, Jon. This is Jeff. If you think about our buyback, our first $50 million buyback, we bought back shares at approximately $10 million per month to get that $50 million by mid-May. Since mid-May, we took that pace down a little bit. But to your point, we are looking at this opportunistically. I think it is probably fair to assume that we'd be a little more aggressive if prices were lower, and a little less aggressive if prices were higher. So it's not a static model. Our thought process is very dynamic there, and we will be more aggressive if prices are perhaps a little bit lower.

Okay, thank you.

There are no further questions at this time. I'd like to turn the call back over to Corning Painter for closing comments.

Okay. I'd like to thank our analysts for your excellent questions and the time today. Thank you very much. This is an exciting time for our company and for the industry. And we really appreciate our investors' continued support. We look forward to seeing you very soon. We're going to be escaping the heat of Houston by coming up for two conferences in New York in September. We welcome other opportunities to meet you. We're out on the road this fall. Thanks again. Have a good day.

This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.