Good morning, and welcome to the Stepan Company Third Quarter 2025 Earnings Conference Call. As a reminder, this call is being recorded on Wednesday, October 29, 2025. It is now my pleasure to turn the call over to Mr. Ruben Velasquez, Vice President and Chief Financial Officer of Stepan Company. Mr. Velasquez, please go ahead.

Thanks, Jecita. Good morning, and thank you for joining the Stepan Company Third Quarter 2025 Financial Review. Before we begin, please note that information in this conference call contains forward-looking statements, which are not historical facts. These statements involve risks and uncertainties that could cause actual results to differ materially, including, but not limited to, prospects for our foreign operations, global and regional economic conditions and factors detailed in our Securities and Exchange Commission filings. In addition, this conference call will include discussions of adjusted net income, adjusted EBITDA and free cash flow, which are non-GAAP measures. We provide reconciliations to the comparable GAAP measures in the earnings presentation and press release, which we have made available at www.stepan.com under the Investors section of our website. Whether you are joining us online or over the phone, we encourage you to review the investor slide presentation. We make these slides available at approximately the same time as when the earnings release is issued, and we hope that you find the information and perspectives helpful. With that, I would like to turn the call over to Mr. Luis Rojo, our President and Chief Executive Officer.

Thank you, Ruben. Good morning, and thank you all for joining us today to discuss our third quarter 2025 results. I plan to share highlights of the quarterly performance, and we will also share updates on our key strategic priorities, while Ruben will provide additional details on our financial results. We delivered 9% adjusted EBITDA growth through the first 9 months of 2025, bringing year-to-date adjusted EBITDA to $165 million. These results were restrained by the significant increase in oleochemical raw material prices, which continues to impact Surfactant margins and by higher start-up costs related to our new Pasadena, Texas facility. We remain focused on gradually recovering our margins and keeping a healthy balance between volumes and margins. Third quarter adjusted EBITDA was $56 million, up 6% year-on-year. Specialty Products adjusted EBITDA increased significantly, driven by favorable order timing within the pharmaceutical business. Polymers delivered volume growth across rigid polyols and commodity PA, while EBITDA was slightly lower due to unfavorable mix and margin pressures. Surfactant adjusted EBITDA declined versus the prior year, driven by higher Pasadena start-up costs, oleochemical raw material cost inflation and lower demand within our global commodity consumer products end market. Total company sales volumes grew 1%, with Polymers up 8% and our NCT product line up 26%, while Surfactants volume declined 2%. In Surfactants, we continue to experience double-digit volume growth within the crop productivity business and mid-single-digit growth in the oilfield end market. This growth was offset by lower demand within the global commodity consumer products end market. North America Rigid Polyol and commodity PA volumes were both up double digits, while European Rigid Polyol volumes continue to be impacted by macroeconomic uncertainties and low construction activity. Despite a very challenging environment for the chemical sector, we remain encouraged by the volume growth across several of our key strategic end markets. We finished the third quarter of 2025 with $10.9 million of adjusted net income, down 54% versus the prior year, largely reflecting a higher effective tax rate, higher interest net, and higher depreciation, none of which had cash impact. Free cash flow was positive at $40 million during the quarter, driven by reduced working capital and disciplined capital spending. During the third quarter of 2025, the company paid $8.7 million in dividends to shareholders. Our Board of Directors declared a quarterly cash dividend on Stepan common stock of $0.395 per share, payable on December 15, 2025. This represents a 2.6% increase in our dividend. Stepan has paid and increased its dividend for 58 consecutive years. Ruben will now share some details about our third quarter results.

Thank you, Luis. My comments will generally follow the slide presentation. Let's start with Slide 4 to recap the quarter. Third quarter 2025 adjusted net income was $10.9 million or $0.48 per diluted share versus $23.7 million or $1.03 per diluted share for the third quarter of last year, a 54% decrease. The decrease was primarily driven by a higher effective tax rate resulting from the recently enacted U.S. tax law, lower capitalized interest income and higher depreciation due to Pasadena plant start-up. These 3 net income unfavorable drivers had no cash impact. Consolidated adjusted EBITDA increased by $3.1 million or 6% compared to prior year. This growth is attributable to strong specialty product results and the non-recurrence of expenses associated with the external criminal social engineering fraud event in 2024. Significantly higher oleochemical raw material costs continued to impact surfactant margins, coupled with softer demand in global commodity consumer product end markets. Earnings growth was also impacted by higher start-up expenses at our new alkoxylation facility in Pasadena, Texas. Cash from operations was $69.8 million for the quarter and free cash flow was positive at $40.2 million, driven by reductions in working capital. We will continue prioritizing free cash flow generation going forward. Slide #5 shows the total company net income bridge for the third quarter of 2025 compared to last year's third quarter and breaks down the decrease in adjusted net income. Because this is net income, the figures noted are on an after-tax basis. We will cover each segment in more detail, but to summarize, we delivered operating income growth in Specialty Products, fully offset by lower operating results in Surfactants and Polymers. The third quarter results were impacted by a higher effective tax rate. The company's effective tax rate was 23.8% in the first 9 months of 2025 versus 18.9% in the first 9 months of 2024. This increase was primarily associated with the recently enacted U.S. tax law. We are forecasting that we will return to our normal effective tax rate range of 24% to 26%. Slide 6 shows the total company adjusted EBITDA bridge for the third quarter compared to last year's third quarter. Adjusted EBITDA was $56.2 million versus $53.1 million in the prior year, a 6% increase. We delivered adjusted EBITDA growth in Specialty Products, partially offset by lower earnings in Surfactants and Polymers. Adjusted EBITDA results also benefited from lower corporate expenses compared to the previous year. Slide 7 focuses on the Surfactant segment results. Surfactants net sales were $422.4 million for the quarter, a 10% increase versus the prior year. Improved product and customer mix and the pass-through of higher raw material costs contributed an 11% to sales growth. Sales volume declined 2% year-over-year due to lower demand within the global commodity consumer product end markets, mainly offset by double-digit growth within the agricultural segment and strong growth in oilfield. Net sales benefited 1% from foreign currency translation. Surfactants adjusted EBITDA decreased $6.2 million or 14% versus the prior year. This decrease was driven by the 2% contraction in volume, higher Pasadena site start-up expenses, and the significant rise in oleochemical raw material prices. This was partially offset by improved product and customer mix. Moving to Slide 8, Polymers net sales were $143.9 million for the quarter, a 4% decrease versus the prior year. Selling prices decreased 14%, primarily due to the pass-through of lower raw material costs and competitive pressures. Sales volume increased 8% in the quarter. North America Rigid Polyol volume grew double digits and our commodity Phthalic Anhydride business continued to deliver strong growth. Global Specialty Polyols volume grew mid-single digits despite the continued challenging overall environment. European and China Rigid Polyols volume was impacted by softer demand across their respective regional end markets. Foreign currency translation had a positive impact of 2% on net sales during the quarter. Polymer adjusted EBITDA decreased $1 million or 4% versus the prior year, primarily due to lower unit margins and unfavorable mix, which was partially offset by the 8% volume growth. Finally, Specialty Product net sales were $24 million for the quarter, a 68% increase versus the prior year, primarily due to higher sales volume. Specialty Products adjusted EBITDA increased $5.9 million or 113%. The increase in adjusted EBITDA was primarily due to order timing fluctuations within the Pharmaceutical business as orders were moved from the second to the third quarter of the year. Next, on Slide 9, free cash flow was positive at $40.2 million for the third quarter, up $44.2 million year-over-year, driven by working capital reductions and disciplined capital spending. We remain optimistic about our ability to deliver positive free cash flow for the full year 2025. During the third quarter, we deployed $29.6 million against capital investments and $8.7 million for dividends. Now on Slide 10 and 11, Luis will update you on our strategic priorities and capital investments.

Thank you, Ruben. I will focus my comments on our strategic priorities. Our customer will always remain at the center of our strategy and innovation efforts. Our Tier 1 customer base remains a solid foundation of our business. Continuing our new customer acquisition within Tier 2 and Tier 3 customers remains a key priority. This is an important and profitable growth channel within our Surfactant business. For the third quarter of 2025, our volume grew low single digits year-over-year, and we added over 350 new customers. Our end market diversification strategy remains a key focus area. For the third quarter, we continue to see strong growth in our crop productivity and oilfield businesses. We are pleased to see our North America Rigid Polyol business continue to deliver year-over-year growth. This growth was enhanced by our new product introduction in the growing spray-foam end market. Our supply chain operation and resiliency continue to improve, and we delivered another solid quarter in all our key operational metrics. Thanks, Rob, we continue making investments in our Millville site to improve operational reliability. Moving to Slide 11, we are proud our new Pasadena site is fully operational and is currently ramping up production. We have made 41 different products to date. We expect that the full contribution rate of the plant will be achieved in 2026. Our commercial team continues to develop and deliver new business opportunities and specialty alkoxylation volumes continue to grow double digits in the third quarter. Looking forward, we remain focused on accelerating our business strategies through enhanced operational excellence, improved product and customer mix, and accelerated free cash flow generation. We believe our Surfactant business will experience continued growth in our key strategic end markets, and that polymer demand will continue improving as we get more market certainty and execute our innovation and growth plans. Our Pasadena facility is operational, and this should enable us to deliver volume growth in our alkoxylation product line and supply chain savings going forward. We remain on track to close the sale of our site in the Philippines in the fourth quarter of 2025, and we are analyzing opportunities to optimize our global footprint and asset base. Despite the ongoing market and tariff uncertainties, which change every day, we remain optimistic that we will deliver full year adjusted EBITDA growth and positive free cash flow in 2025. This concludes our prepared remarks. At this point, we would like to turn the call over for questions. Jecita, please review the instructions for the questions portion of today's call.

Our first question comes from Mike Harrison at Seaport Research Partners.

I was hoping we could start out with a couple of questions on surfactants. First of all, where are we right now in the process of recovering the oleochemicals cost run-up in surfactants? Do you expect that impact could be fully offset by Q4? Or could it take a little bit longer to recover?

Good question, Mike. So let me start with some background information here. So as you all know, you can track this, it's public information: coconut oil prices. If you think about the first 9 months of 2025, the average is $2,500 per metric ton, that's a 70% increase versus 2024. So 2024 average was $1,500. We are at $2,500. The peak was $3,000 as we talked last quarter. The prices are coming down. That's the good news. Prices are coming down from the peak of $3,000 per metric ton. So we have recovered a lot of the 70% increase, but we are still catching up. We had another price increase in North America on October 1. And that's the objective. The objective is that by 2026, we will recover the margins that we saw on coconut oil prices, which again were significant and the prices are now coming down, which is the good news.

Just to follow up on that, if we are seeing some of that raw material costs come lower, I guess, does that make it more challenging for you to get the pricing you need? And does that mean that at some point, we could see you give some pricing back if that trend continues?

No. Look, one thing that I was very clear on in my prepared remarks was that we will continue driving the right balance between volumes and margins. This is an asset-intensive business. We need volume through our reactors. We will not lose share. We will be competitive in the market and balance volumes and margins to maximize net income and return for the company. And again, that's the balance that the team is delivering. I'm pleased with what they have done in the last few months, and we need to continue that effort in the future months, continuing to manage that balance between volumes and margins.

All right. So that kind of leads into my next question, which is just about the overall margin performance of the Surfactants business. Obviously, still a lot of moving pieces with the Pasadena facility starting up, and we're probably not yet seeing the full benefit of bringing some of that alkoxylate production in-house. But do you have longer-term goals for where the Surfactants segment margin could reach over time? Historically, operating margin in that segment got into the double digits, and it was pretty consistently there for a few years. And I'm just wondering if that type of double-digit operating margin could be achievable as we look out 2 or 3 years?

Great question, Mike, and that's, of course, our belief as well. Look, EBITDA margins are restrained. I mean, call it, close to 10% now because all the investments in Pasadena and still the impact on oleochemicals, but we believe this business, as we continue growing in our functional markets, agrochemical, oilfield, construction, and industrial solutions, as we continue growing in Tier 2, Tier 3, we believe this is a healthy double-digit EBITDA margin business going forward. And of course, we have made investments. We have made investments and everybody knows that. So on an operating income, with all the depreciation of Pasadena at low 14%, people can see that in the numbers. But on an EBITDA basis, this business will continue performing at a decent margin level, and that's what we are focusing on, growing our high EBITDA margin businesses as we continue to grow those.

All right. And then over on the Polymers business, just a couple of questions here. First of all, do you believe that there is pent-up demand in the commercial roofing and commercial insulation space? And I'm curious, do you think that lower interest rates could help to stimulate some additional activity there?

Certainly aligned, Mike. We believe there is a lot of pent-up demand from all the construction that happened in the early 2000s. If you look at all the construction that occurred in industrial construction, warehousing, plants, flat roofs in early 2000, which was a huge peak, a lot of those buildings need renovation in the next 5 years. We're aligned 100% with the belief from some of our customers that all that reroofing needs to happen. It's not going to happen overnight, but it needs to happen, and PIR insulation is the preferred choice for all those flat roof projects coming up. You are 100% right that we should see another interest rate reduction today, with a 98% probability now of an interest rate reduction in the December Fed meeting. We believe 2026 will give us some upside in the construction activity if interest rates continue in the direction they are and inflation rates also move positively.

All right. And just to follow up on Polymers. From the margin side, I believe you mentioned that unit margins are down, the pricing was down quite a bit. You referred to some competitive dynamics that are challenging. Is your expectation that if we started to see some recovery in demand, that we would also see some recovery in unit margins as well?

Look, I mean, we're happy — look, we always can improve our margins, right? But if you look at the first 9 months of the Polymers business, we were able to grow EBITDA modestly, very little, but modestly, we were able to grow despite the sales being down. So EBITDA margins are improving slightly in the Polymers business despite everything that is going on, especially in Europe, which is a very tough situation. We believe we want to grow the top line. We want to grow the volumes, and we need to keep inching up the margins as we drive scale. The benefit of higher volumes and scale should improve our margins, but we are not planning a significant increase. We're happy with the margins that we have, and we need to continue inching those up as we grow our business. We had a negative impact on margin as we grow PA and as we grow in some of the other markets because those typically have a mix impact on the overall Polymers business.

All right. And then my last question is, you mentioned the Philippines asset sale, and it sounds like maybe you're contemplating some other actions to help optimize your footprint. Can you give us any sense of what those actions might involve? Are they just one-off smaller facilities? Or could there be some larger pieces of business that you might be targeting for divestment over time?

Great question, Mike. And look, we are committed to delivering balanced EBITDA and net income growth going forward between productivity and asset rationalization and top line growth, right? The industry needs both. You have seen a lot of announcements from other companies in the past 6 to 12 months. We have made the announcement on the Philippines. We will make more announcements in the future. We need a balanced approach between top line growth, productivity, and asset rationalization. We all know the chemical industry is facing overcapacity, and we need to make decisions regarding that overcapacity. We will make those announcements whenever we are ready to proceed.

Our next question comes from Dave Storms at Stonegate.

I wanted to start, you mentioned on the call, spray foam has really been a nice driver for you in the Poly section. Could we — I guess my question is, how much more room for growth do you think there is there? And could we maybe see a second wave of growth if the European environment improves?

Great question, Dave. Look, we have talked about spray foam in the past few quarters. We're serious about this end market. We have developed great technologies and products to serve the high-growth margin, and we started this year. So I'm pleased with what the team has delivered and with the benefits that we are starting to reap. This is very early, and it's a good market. It's a good market that has a lot of potential to grow not only in the U.S., but eventually in Europe in the future. We are happy with our participation, and we need to grow more share. We are starting from almost 0 share, and we are committed to continue investing and developing this business. When you think about Europe, of course, we had higher expectations for our European region to start growing more on the construction activity. But with the war in Ukraine and all those factors, the reality is that construction activities are still very muted in the European region. Now as interest rates come down and they keep focusing on energy conservation, which is a huge issue in Europe, we believe the market trends are there for the future. It's not going to happen in the short term, but we believe this is a good industry for the next 3 to 5 years, and we are committed to continue investing and to continue growing our European Polymers business.

That's great commentary. Switching to the Surfactants segment. Just would love to ask about maybe the end user there and what you're seeing from a demand perspective. It was noted that you're seeing lower demand in the laundry and cleaning end markets. Is this maybe early indications of a substitution effect? Or maybe is this more onetime in nature? Any commentary there would be great.

No, great point, Dave. Of course, we continue to see a lot of changes in the consumer piece in terms of active levels switching down to lower active products. This continues to be an evolving situation. But in the end, we believe going forward, again, you need certain levels for the products to work. And those active levels are getting to the point where you cannot go significantly lower. So we feel good about the cleaning and the laundry business going forward. There is going to be a mix between high active and low active products, consumer brands versus private label brands. But we believe we are in a decent position now thinking about 2026 and 2027.

Understood. And then one more, if I could, Specialty has shown 2 quarters of strong year-over-year improvements. It seems like a lot of this is predicated on volume growth. Would just love to hear your comments about how sustainable you think these potentially new volume levels are.

Look, we are extremely pleased with the performance of our Specialty Products business. Kudos to Jamil and the Maywood team for everything that they have done over the last few quarters, excellent performance. We still have opportunities to grow. We love our MCT product line. As we said in the remarks, there was a 26% volume growth, and we are extremely happy with this business and its performance. It's a high-margin business. So we will continue investing. We will continue investing to make sure that we maximize the return we can get. It's a small part of the company in terms of revenue, but it's a huge part in terms of operating income and EBITDA, and we're extremely happy with what the team has done, and we'll keep working on ideas for the next 3 years.

This concludes the question-and-answer session. I would now like to turn it back to Mr. Rojo for closing remarks.

Thank you very much for joining us on today's call. We appreciate your interest and ownership in Stepan Company. Have a great day.

Thank you very much for joining us on today's call. We appreciate your interest and ownership in Stepan Company. Have a great day.