Greetings, and welcome to the Orion S.A. Third Quarter 2025 Earnings Call. Please note, this conference is being recorded. I will now turn the conference over to your host, Chris Kapsch, Vice President of Investor Relations. Please go ahead.

Thank you, Carrie. Good morning, everyone. This is Chris Kapsch, 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 Glajch, 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. We will 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 5, 2025. Orion 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 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 Corning Painter.

Good morning. Thank you, Chris, and thanks to everyone for joining our conference call. Before we dive into the Q3 review, I'm excited to share that we’ve appointed a new CFO to succeed Jeff, who previously announced his retirement plans. We’ll make a formal announcement soon. We had a robust pool of candidates from both inside and outside the company, and we selected someone with over 30 years of experience in finance and business, including 15 years in the chemical industry. He will join us on December 1. Jeff has agreed to stay on with Orion through the end of the year and will assist with the transition until Q1 2026. In today's call, I'll provide a high-level overview of our Q3 results, which did not meet our expectations, though we know we have better earnings potential. Nonetheless, there are positive points for investors to consider. I will also address the current business environment and recent challenges. Our primary struggle has been weak demand in our main markets. Various Specialty end markets are affected by a slowdown in global industrial activity, as indicated by soft PMI readings. In our normally resilient Rubber segment, despite good tire sell-through, tire production in our key markets has decreased. Compared to what we would call normal levels, tire production in the U.S. has fallen by about 29%, while Europe saw a 20% decline, and in Western Europe, it was closer to 35%. Although there are indications that demand may improve, we are not relying on better conditions. We are making adjustments based on the present reality, focusing on self-help measures that we can control, aimed at improving Orion's structural costs and overall competitiveness. I will elaborate on this shortly. A key objective of these efforts is to ensure the company generates positive free cash flow, should the headwinds continue. I will then pass the call to Jeff, who will provide a detailed review of the third quarter financial results, discuss our free cash flow, updated guidance, and other matters. I will follow with some closing remarks before we open the floor for questions. On Slide 3, we summarize the factors influencing our Q3 performance. Adjusted EBITDA of around $58 million slightly exceeded our mid-October pre-announcement but remains below expectations. The main issues were decreased demand in the Rubber segment in key Western regions, weak performance in premium Specialty markets, and fixed cost absorption variances across both segments due to inventory control initiatives. Additionally, we absorbed another inventory revaluation in Q3 due to lower oil prices. Importantly, our operations team maintained strong plant reliability throughout the quarter. This sustained operational improvement brings various benefits, which I will discuss shortly. In our Rubber segment, our customers are experiencing pressure from elevated import levels. Increased tire imports and surplus channel inventories have impacted their production rates, and subsequently our carbon black demand. Additionally, the overall softness in industrial activity has affected our Specialty business, especially in markets that usually consume our most profitable grades. Historically, we have been more heavily weighted towards Western markets and premium tire manufacturers, which has been advantageous in better times, but has not helped us as much in 2025. However, we are seeing some positive shifts. Tier 1 manufacturers are altering their approaches to maintain market share, which includes more innovation in higher-end products, efforts to modernize facilities, and more aggressive promotion of their second-tier brands. The most recent 232 proclamation is another positive development. To put it in perspective, Western markets have long been dependent on tire imports, often with about half the tire sell-through at most, unlike the recent levels exceeding 70 percent. As the market adjusts towards more normalized import levels, we stand to benefit from a resurgence in demand for our carbon black. In our Specialty segment, we've devoted significant resources to drive customer qualifications for our latest and most innovative conductive carbon products, and these efforts are already showing results. On this slide, we showcase several recent qualifications with leading supply chain players in both the high-voltage wire and cable markets and the battery energy storage sector. These applications are closely tied to the strong demand growth in data centers for power. This conductive product line, including our high-purity acetylene blacks, is our fastest-growing category, with exciting potential applications beyond traditional EV batteries. On Slide 4, we present updated data related to the key tire end market. We observed that the monthly import data for July was notable, given the volatility, triggered by various factors. Unfortunately, this is still the most current U.S. import data due to the government shutdown. Analyzing the categories reveals that the biggest factor in the July increase was a significant rise in truck and bus tire imports, which surged over 50% year-over-year for that month. We emphasize this because the surge may indicate that some exporting nations are attempting to circumvent impending tariffs. For example, Thailand, the largest truck and bus tire exporter to the U.S., saw its export figures decline in August when the country's tariffs took effect. Meanwhile, the U.S. has recently imposed a 25% Section 232 tariff on diesel truck parts, which will definitely include truck and bus tires starting in November. Section 232 tariffs are robust and take precedence over any country-specific reciprocal tariffs. In Europe, the tire industry anticipates that the EU's investigation into exports from China will likely conclude with an initial finding of dumping in December, which will have retroactive implications. Preliminary negotiations have started concerning the USMCA trade agreement, expected to undergo a reset effective July 1, 2026. It’s worth noting that Canada and Mexico are net exporters of tires and carbon black to the U.S., and Orion has no production facilities in either country. Finally, we believe that significant capital investments from major tire companies aimed at increasing unit capacity and modernizing existing production facilities bode well for North American fundamentals in the coming years. Although a projected production capacity growth of 3% through 2030 is encouraging, their intentions to reshore are even more telling. A normalization in local tire production rates would significantly drive an earnings recovery for Orion. On Slide 5, we outline the steps we are taking or plan to take to navigate the current landscape, highlighted by three points. First, while we expect tire manufacturing to recover, we are not counting on any improvement in our key end markets. Second, to boost our competitiveness, we are implementing measures to improve Orion's overall cost structure. Last quarter, we initiated the rationalization of 3 to 5 underperforming production lines, which we expect to complete by year-end. We are also exploring further optimization opportunities within our production network. Third, we are reassessing our non-plant headcount, work processes, relationships with outside contractors and consultants, alongside the company's overall discretionary spending, and are in the process of further streamlining our costs. The savings from these efforts to enhance competitiveness will begin accumulating this quarter and are projected to reach a steady run rate by mid-2026. We will provide more details on expected benefits when we share next year's guidance in February. In conjunction with these competitiveness efforts, we are also implementing measures to enhance our cash flow immediately. A notable highlight is the sustained improvement in our overall plant operating performance, which helps in multiple ways. Beyond enhancing on-time customer service levels, improving quality, and reducing scrap, we are able to effectively manage our business with lower inventory levels, thus freeing up working capital. The progress in this area over the past two quarters has been visible, and we anticipate a strong Q4 seasonal release, including, but not limited to, receivables, which should allow working capital to generate approximately $50 million in cash by 2025. The improvements in plant operations stem from our organization's concentrated efforts, along with a reduction in a backlog of previously postponed maintenance projects. With enhanced operational performance and fewer production lines requiring maintenance capital, we can prioritize our spending on initiatives that improve reliability at our most crucial production sites. All of this reinforces our confidence in generating free cash flow despite the decline in EBITDA. Jeff will provide more insights into cash flow following his Q3 review. Now, I'll turn the call over to Jeff.

Thank you, Corning. On Slide 6, we show the overall company performance, both year-over-year and sequentially in the table, and compared with last year in the EBITDA bridge. Revenue was down 3% compared with last year despite 5% higher volumes. This was mostly a function of the contractual pass-through of lower oil prices, which have declined progressively throughout the year. Gross profit was 20% lower compared with last year despite the higher volumes. The most meaningful volume gains occurred in our lowest margin markets, while volumes declined in our more profitable Western regions. As a result of this dynamic, the lower demand in key regions and associated adverse fixed cost absorption were the biggest drivers of the profitability decline. The fixed cost absorption had an effect of improving our working capital and increasing our free cash flow by reducing inventories. Also, an inventory revaluation tied to lower oil prices impacted gross profit as did adverse pricing. Finally, we had some favorable one-offs last year that did not repeat. On Slide 7, the Rubber business KPIs were directionally consistent with the overall company performance. Volumes were up 7%, but revenue was lower due to the oil-related pass-throughs. Gross profit declined compared with last year, primarily a function of the adverse geographic mix, reduced fixed cost absorption in key Western regions, pricing and customer mix, as well as the aforementioned inventory revaluation. Higher volumes in the Asia Pacific and South American regions were related to our improved operational performance and annual contract outcomes, respectively, but these gains contributed minimally to EBITDA because our high-margin regions experienced lower volumes. Compared with last year, costs increased due to inventory-related cost absorption, oil price-driven inventory revaluation, and other timing effects. Slide 8. In Specialty, we had year-over-year and sequential volume gains, but the improvement was skewed towards lower-margin applications and products. In the coatings market, for example, a premium segment, demand was impacted by soft OEM vehicle builds and particularly with dispersion houses that can serve as swing capacity for the major coating companies when demand is stronger. More generally, we believe hesitant customer demand behavior, including continued just-in-time order patterns, reflect overall uncertainty. The biggest cost factor in Specialties EBITDA bridge was the adverse fixed cost absorption, largely a function of our inventory control efforts. On Slide 9, we touch on a few other noteworthy items in the quarter. We recorded an $81 million noncash goodwill impairment charge. Our book value, which includes goodwill, is compared to the implied value of those assets when considering our enterprise value. On a positive note, we recovered $7.3 million of the 2024 fraud-related losses through legal actions and around $11 million to date. We continue to aggressively pursue recovery through a variety of legal means and insurance coverages. Finally, we completed an amendment to our credit agreement during the quarter, which increased our RCF capacity back to its prior level, expanded our bank group and gives us more overall flexibility in navigating the current business environment. On Slide 10, we depict our latest 2025 guidance including, the EBITDA range conveyed in mid-October and the corresponding adjusted EPS expectations. Reflecting our current EBITDA guidance, along with better visibility on our progress with our working capital efforts, we expect positive full year free cash flow in the $25 million to $40 million range. Slide 11 shows our historic capital spending, including spending expectations for 2025. Notably, we do not have a figure for 2026 on this slide as we anticipate updating investors on this spend when providing a broader outlook in February. One fluid aspect is our ability to flex maintenance capital given our improving plant reliability. On Slide 12, you can see that we have achieved positive year-to-date free cash flow and expect further working capital improvements in Q4. As mentioned earlier, we expect full year free cash flow of $25 million to $40 million. With that, I will hand the call back to Corning.

Thanks, Jeff. I want to close by emphasizing a few key points. Although it's possible to argue that our business is at or near its lowest point, or that we may see a demand shift soon, we are not relying on that happening. We are taking proactive steps. We have decreased our working capital and anticipate making further improvements in the fourth quarter and into 2026. We are also cutting additional costs and focusing on optimizing our assets. Our aim is to enhance Orion's competitiveness and agility. This will help us navigate the current challenges, and when demand stabilizes, we will be ready to achieve even better operational efficiency. We will provide a more detailed update on these initiatives in February. Throughout all these efforts, our unwavering goal is to generate free cash flow, which is our top priority. Now, Carrie, let's open the line for our Q&A discussion.

And our first question will come from Josh Spector with UBS.

It's Chris Perrella filling in for Josh. Corning and Jeff, what are your expectations for your volumes in Q4 and into 2026? Additionally, how advanced are you in the contract negotiations for next year, and what does this suggest about pricing and spreads for 2026?

So our expectations for Q4, like the decline, if I'm comparing it to prior years, that's pretty much all volume largely in that area. So we're expecting people to take longer seasonal shutdowns, that kind of thing, and be managing down their own inventory in Q4. That's the signal we have there. I think for next year's volumes, in terms of manufacturing, as I indicated, there's a case to be made that inflection is upon us, but we're not counting on that. And I would say, in terms of negotiations, there, as we said and predicted last quarter, we didn't see settling quickly in our interest. They continue to drag on. And I would say all in all, the negotiations are behind schedule compared to a more typical year. So I think in terms of exactly what's going to be out there for next year in terms of volume, we're really going to have to wait until we conclude the negotiations.

I appreciate that. Can you explain the impact of La Porte on volumes and earnings in 2026?

I mean, volume-wise, it's not a high-volume plant to begin with. And I think overall, with the start-up costs and all that, I would expect it to be negative in 2026.

And our next question comes from John Tanwanteng with CJS Securities.

Assuming that import tire pressure remains consistent through 2026 at 2025 levels, what is the potential for earnings improvement in RCB for 2026 given the changes you are making in costs and your customers shifting towards more value positioning? Please help us understand the possibilities, considering that volumes are flat. Additionally, any insights on pricing spreads would be appreciated.

Yes. I believe that the key issue in 2026 will be the results of the negotiations, specifically the volume a company secures and the associated profit margins. This is a significant uncertainty. We will continue to focus on the efficiency projects I mentioned, but the results of the negotiations will have a major influence on next year. It's crucial to note that this information is commercially sensitive, and we are currently in the midst of these discussions.

Okay. Great. And then do you have any expectations for Specialties next year, whether it's market improvements, mix improvements? Just help us understand what your thoughts are on the Specialty side.

We will provide our official guidance for next year in February. Our views will be primarily influenced by direct feedback from customers. You can gauge this by monitoring the general manufacturing trends and the PMI. Additionally, OEM builds are a significant market, so those factors will be helpful in understanding how we anticipate that business will evolve.

Moving on to Laurence Alexander with Jefferies. We will provide our official guidance for next year in February. Our views will be guided by the feedback we receive directly from customers, as well as indicators like the performance of general manufacturing and the PMI. Additionally, OEM builds are a significant market to consider. These factors will help you understand how we anticipate that business will evolve.

This is Kevin Estok on for Laurence. Just curious if you could give your thoughts around maybe what an industrial rebound would look like, I guess, let's say, in 2026 or 2027? And I guess just curious what you think it takes to get us there?

Sure. I believe that an industrial recovery would bring us back to conditions resembling those before COVID. In that scenario, we would likely be nearly sold out in our key markets, experiencing strong demand from OEMs and tire manufacturing, along with more normalized trade flows. One positive aspect is that tire sell-through remains robust, reflecting the conditions I mentioned. Although shipping and trucking activity has decreased slightly, passenger car performance is quite strong. The major concern lies in the success of our customers in the west regarding their market share, which is currently benefiting from favorable trade policies. In the Specialty area, increased activity in construction and automotive would greatly contribute to improvements. Overall, the industrial economy returning to a more normalized state is crucial.

I'm moving next to John Roberts with Mizuho Securities.

John Roberts for John Roberts again. Do you think the tire importers into the west are receiving government support or maybe lower raw materials, I don't know, Russian rubber or Russian oil for carbon black that allows them to continue to import into the U.S. in spite of the tariffs?

I believe that the 232 tariffs of 25% won't completely eliminate imported tires. The U.S. and Europe can't produce all the tires they need. Before these tariffs, about 50% of tires were imported into the U.S., which is similar to Europe. It’s not about pricing those imports out entirely; it's more about customers returning to their preferred brands. A recent magazine noted that in October, Tier 2 tires saw the greatest demand, which is more in line with normal conditions. Earlier this year, Tier 3 tires had the highest demand among the four tiers tracked. This shift indicates a change in consumer sentiment towards different value propositions in tire purchases. Additionally, the tariffs help narrow the gap between Tier 2 and Tier 3 tires, where most Tier 1 companies offer a Tier 2 brand. The objective isn't to eliminate imports, which is unfeasible, but rather to bridge the gap enough for consumers to shift back to Tier 2. This suggests there's potential for change and that things may revert to normal, although we're not relying solely on that happening.

John, depending on the results of the antidumping situation in Europe, you may also see an impact from that. That might give you some insight into either the profitability they're facing in the short term or even their willingness to operate at a very low or negative return.

Is it fair to say, it sounds like the recovery is more dependent on the lower-end consumer improving than it is on the tariffs? I mean the tariffs help, but it sounds like we need higher tire prices.

I believe there are two key aspects to consider. First, we shouldn't solely depend on government actions; the industry has a significant role to play as well. There are certainly advantages in trade policy that can help address some of the unfair disadvantages previously mentioned. It’s essential for both of these factors to work in tandem. Furthermore, I want to emphasize that the industry and our customers can engage in self-improvement. They have the ability to innovate their top brands, enhance their appeal, and promote their second-tier brands. They might also consider shifting production between these brands. These actions are within their control, and we are beginning to see some companies take steps in this direction, though the levels of response vary.

And we'll take a follow-up question from Josh Spector with UBS.

It's Chris again standing in for Josh. As I consider next year, what are some of the recurring costs in 2025 that won't be present in 2026?

Well, so I think one thing that's been with us all year long, I'll let Jeff go into this, Chris. But I think one thing that's been with us all year long has been the inventory adjustments. And that's really a factor of the trend of oil pricing, and we pass that through, but there's always an element of that. Should we just assume stable oil prices, then that would go flat for us. I mean if they went up, it would revert and go the other way. But I mean that's certainly been a drag this year.

Yes. If you think about it to date, we've taken our inventories down by $34 million. So that's a pretty significant reduction in the inventory, and associated with it is the cost absorption related to pulling that inventory off the balance sheet and running it through the P&L. I think that's the biggest thing. Going the other way, obviously, we've taken some cost out this year. Many of them are permanent, but there's a variable comp component that's not permanent, so that would have to add back in. But as Corning mentioned earlier, we have some pretty aggressive cost actions that we are going at currently and going into early 2026, that will help us reduce our costs next year and become more competitive.

This now concludes our question-and-answer session. I would like to turn the floor back over to Corning Painter for closing comments.

Well, I'd like to thank you all for your time and attention today, and to thank everyone for their questions. They were insightful and useful, and I think, added value for all our investors. So thank you very much for that, and we look forward to be speaking with investors during the balance of this quarter. Thank you all. Have a good rest of your day.

And ladies and gentlemen, thank you for your participation. This does conclude today's teleconference. You may disconnect your lines and have a wonderful day.