Greetings, and welcome to the Orion Fourth Quarter and Full Year 2024 Earnings Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce Mr. Chris Kapsch, Vice President of Investor Relations. Thank you, you may begin.

Thank you, Julian, and good morning, everyone. This is Chris Kapsch, VP of Investor Relations at Orion. Welcome to our conference call to discuss fourth quarter and full year 2024 earnings results and the initial [Indiscernible] for 2025. Joining our call today are Corning Painter, Orion’s Chief Executive Officer; and Jeff Glajch, our Chief Financial Officer. We issued our fourth quarter earnings release after the market closed yesterday. 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, I am 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, February 20, 2025. The company is not obligated to update any forward-looking statements based on new circumstances or revised expectations. All non-GAAP financial measures described during the call are reconciled to the most directly comparable GAAP measures in the tables attached to our press release and the earnings deck. All non-GAAP financial measures presented in these materials should not be considered as alternative to financial measures required by GAAP. With that, I will now turn the call over to Corning Painter.

Good morning and thank you for your interest in Orion and for joining our call. As soon as we issued a preliminary update on year-end results last month, I’ll just touch upon 2024 from a high level and jump in to how we see it as market evolves. Then I’ll discuss how we intend to navigate these dynamic times to drive results, unlock Orion’s inherited greater value and promote shareholder returns. After that, I’ll turn the call over to our CFO, Jeff Glajch to review Q4 and year end results and to discuss the sharp improvement in free cash flow that we see in 2025 and into 2026 and beyond. If there was just one takeaway from today's call, it would be just that the free cash flow inflection is at hand. On Slide 3, despite the late Q4 demand weakness in our rubber segment, we finished 2024 with EBITDA just north of $300 million. True, we expected to achieve higher levels at last year's onset, but the $302 million that we did achieve in 2024 is still 14% above pre-COVID earnings levels despite a demonstrably softer global industrial backdrop underscored by nearly two and a half years of PMI contraction in both North America and Europe, and despite our rubber demand being further undermined by distorted global tire trade flows which we've discussed in prior calls. With consumers still trading down, elevated levels of low value tire imports persisted through the end of the year. This in turn weighed on local tire production in the geographies most important to us. On this slide we mentioned mid cycle volume. The metric simply represents some rough normalization math that could be expected from a stronger demand backdrop, including a return to historic levels of tire imports, implying about $100 million of…

Thank you, Corning. Slide 9 depicts highlights for our Q4 and 2024 financial results. Notably, while EBITDA was down about 7% year-over-year in the fourth quarter, there were several tax items which benefited adjusted EPS, which was more than double the prior year's EPS. The tax items were mainly one time in nature but not adjusted out based on our long standing internal policy and for consistency purposes. Weaker rubber demand in the quarter contributed to the fourth quarter's EBITDA decline. We believe this was primarily tied to pressures our customers were feeling from elevated tire import levels in both North America and Europe along with their extended holiday shutdowns and inventory adjustments. The dollar strengthening midway through the quarter versus the Euro, South Korean Won and Brazilian Real also impacted our results modestly. Finally, we had about $1.4 million of cost in Q4 related to our workforce reduction. These costs were not added back to adjusted metrics. On a full year basis in addition to soft rubber demand, adverse cogen comparisons and inflationary costs were contributors to our 9% lower EBITDA. The impetus for our commercial strategy to partly diversify away from our premium Tier one tire customers was the imported tire impact and consumer trade down issues which Corning mentioned. In addition, these challenges and continued cost pressures were factors in our headcount reduction action which should result in approximately $5 million to $6 million in annualized savings to help offset higher fixed costs and SG&A inflation. As a side note, along with the Q4 impact of $1.4 million, we expect to have another $2 million of separation costs related to this initiative which will occur in Q1 of this year. This charge again will not be added back to our adjusted EBITDA results. Importantly, we are beyond…

Thank you, Jeff. So this is a great slide. To just sum things up and finish the call on, I want to stress the Orion team is dedicated to these very dynamic times to be opportunistic, to be nimble, to be fast, to execute well. And by doing that we are convinced that we can realize Orion's inherently higher value. And personally I think this slide and the free cash flow inflection point that is upon us here, this is going to be a powerful catalyst for us. We're looking forward to that. With that Julian, let's open it up for some questions.

All right, thank you. [Operator Instructions] And our first question comes from Josh Spector with UBS. Please proceed.

Yes, hi, good morning guys. I first wanted to ask just on the guidance for 2025, you went through a number of moving pieces earlier in the call. But I wanted to be clear on the macro assumptions specifically around volumes and the import pressures that the industry has faced. Are you assuming any change in 2025 versus 2024 and within that are using your customer forecasts for volumes? Are you saying that things stay the way they are? So kind of just wondering how much of this you view as in your control at the midpoint versus needing markets to cooperate. And then I guess as a follow up, you know what drives the 20 million higher or lower? What's the biggest variable you see?

Hey Josh, this is Jeff. Hopefully I'll answer all your questions. If I miss something, let me know. With regard to volumes on the rubber side, as we've mentioned, I think in the November call we've had we've won some additional lanes with certain customers and we are expecting rubber volume increases probably around the mid-single digit range, something in that area from those lanes. On the specialty side we also expect some additional volume growth as we've seen over the past couple of years that those markets have recovered. I think about the kind of hitting the midpoint to your point, we'll probably see about $10 million improvement in our operations in China which we talked about also in the call in November, probably another $10 million to $15 million between specialty as well as some improvements in the co-gen area, we have some additional variable comp cost which is a negative of about $5 million. So if you add all that up you get about a $20 million increase and that is starting off of the base of about $290 million. And I'm using the 290 to take our actual results and then adjusting them for FX, as Corning noted in his prepared remarks. So some of this is obviously due to our customer. We have to use our customer forecast to some extent, certainly on the rubber side, but the additional mandates is where we're seeing some additional volume.

Yes, maybe if I just elaborate. Our customers, when they made their forecast for this year, they really did not put out in the rubber side significantly increased forecast for this year. Now the whole thing is going to turn potentially in imports and will there be help from that? That's not in our planning. That's not in our tire customers planning. That's why we did the cost reduction to offset the inflation. So it's really not the lines on that. Of course, imports could go up or down and we'll have to see how that plays out. But we're going to be active and dynamic in that environment.

Thanks. And maybe just one follow up on the China piece. Just when you talk about getting Huawei running and then ramping, I guess kind of a similar dynamic of how much of that 10 million is just a cost avoidance versus you're assuming. I mean, I think you'd have to gain share in the market to fill that up. So what are the two pieces there?

Yes, I'd say it's kind of getting back to where we were in certain specialty grades in China. I think there's room for that right now, especially in these more premium areas. Keep in mind, before not too long ago, we were exporting from Europe from U.S., from Korea for these same grades into China. So I think that's doable for us. There's going to be a mix in that of okay, we have fixed costs and we didn't have enough sales. So you're getting better absorption and cost performance in that regard, Jeff. But some of this is going to be just incremental volume and of attractive material.

Okay, thank you.

You're welcome, Josh.

Thank you. And our next question comes from Laurence Alexander with Jefferies. Please proceed.

So, good morning. Two questions. First, can you speak to kind of your perspective on supply addition, particularly curious about competitive behavior or supply demand balances in specialty blacks. And secondly, are there any end markets where the carbon black intensity is also changing? I guess what we're trying to fish for is are there sub markets again more interested in specialty than rubber where if demand improves there's an outsized benefit for Orion because of the impact on mix or technology shifts at the customers or formulation shifts or requirements.

Okay, Laurence, let me take a shot at it and then come back to me if a follow up as you need. So I'd say like the biggest change in specialty from a market perspective is conductivity. And we all know EVs is not exploding and we're past maximum height there. But it's still a growing market and I think still an attractive one for us. So you've gotten that EV batteries, you've gotten that now energy storage systems. And I'd also say for that same let's say conductive grades, the high voltage wire and cable markets, especially if you think about remote energy production relative to where the city centers are. Within any given segment, there are opportunities where they're going for more intensity or in our case exciting when they're looking for a higher specification of the carbon black or a higher performance carbon black. But a lot of times than that you're looking at a more niche, sort of like a wave effect of more of many of those things versus like a particular one I point to. So we have debottle necked some of our really advanced materials for coatings. So you think about automotive top coat, that's an attractive market for us. Market isn't that great? Right. For OEMs right now I'd say. But we see people like wanting to adapt and qualify those materials. That's a plus for us. But it's like not a tidal wave in the way that connectivity I think is still a pretty big wave. Does that help?

Yes. Thank you.

Thank you. And our next question comes from John Roberts with Mizuho Securities. Please proceed.

Thank you. Nice guidance. What do you think operating rates are in Russia, China and India and do you think collectively they change in 2025?

Well, the big question there is going to be like what happens in peace and trade flows and all of that. So if there was peace I think you'd see some. And if they're let into Europe. Right, which I think is a big question. But I think that's what's on investors mind. What's the risk scenario in that case? If they did come in? I mean I don't think they'll get nearly what they had before. They were over a third of the market. We had customers who bought literally 50% of their carbon black from that. I don't think they're going back, and if they do, I don't want to ever hear about sustainability again. What I think we will see is, of course, some of that coming into the marketplace, but I think we'll see that displacing Indian carbon black and Chinese carbon black. I think in turn, we'll see less Russian carbon black going into China. So maybe you'd see a slight normalization in that. But I would stress to investors we were raising prices in Europe before the war, and I think there's still a premium for local supply. And there are people building tire factories in Europe. So I think that's all a positive there. In terms of current operating rates, obviously, I would suggest they're down a bit in Russia. It's very hard to get good data, but I suspect some of the raw material is being used for fuel today. China always reports very large capacity relative to what they actually make. Kind of hard to read there. India went through some expansions. They probably got reasonably good loading on the new plants, lower on the old. And in a scenario, let's say, like normalization in Europe, I think some of the older plants in India would be ripe for just being retired.

Okay, and then secondly, your Rubber volume was down 2% in the fourth quarter. What do you think unit tire volumes were at retail in your geographies in the fourth quarter?

Well, so like, if we just look at North America, they were up. So if you look at trade data, you can see tire sales in North America. It's easy to get good data. There is really quite good. But if you look at, like, U.S. TMA tire production, it's down quite significantly. And tire imports are up quite significantly. I mean, that is the big story in the rubber carbon black demand. And so again, we're not counting on like that reversing tomorrow. We'll see what happens. What we did in this scenario was to go out and get a few more mandates in terms of supply. Those are often in other regions that's going to show up in mix and so forth. And we also move for some different customers because in our experience, the customers most linked to premium brands and so forth are the ones who have been hurt the most in the current environment.

Thank you.

Thank you. And our final question comes from Jon Tanwanteng with CGS Securities.

Good morning. Thank you for taking my questions. My first one is just Corning. Obviously we get the free cash flow message. How much can we reasonably expect you to devote your -- as a portion of your discretionary cash flow to, to share buybacks? Is there a percentage you have in mind, a number of shares or amount? I know you have an authorization out there, but I'm just wondering if there's, a portion or percentage that you're willing to think about versus growth investments versus debt pay down.

Yes, I really think about this as an opportunistic approach. So I think it depends a little bit on how we see business cash requirements, but quite frankly pretty significantly where we see the share price. So I think that can vary for us. I mean, bunch of professional investors on this call. Right. The goal is to buy low and you have to be opportunistic about this, I think to do it well.

Fair enough. And then can you give us an update on the port and you know when we might expect to see some things like offtake agreements or qualifications on that?

Sure. So the plants advancing well, the super modules, which might have seemed like the biggest risk coming from China, were in on schedule. It's more the U.S. Equipment that's been a challenge, but nonetheless we expect to be finishing that up late this year and doing qualifications next year. We are actively signing customers and sampling them with a product that we make or supplying them with the product that we make today in France. Our whole strategy around the French plan not to maximize EBITDA, to maximize the number of customers who we have in supply from the site. And customers are willing to accept that because then, they could see this pathway to go ahead and qualify the port. That said, they are going to have to qualify La Porte and in many cases the more valuable, the more profitable, the more differentiated that guy's application is. It will have to go through a qualification process, oftentimes also involving their customers. So I would expect us, we'll be operating in 2026 and we will be probably in early days. Right. Getting some maybe lower quality sales in there as we work through the qualifications. And I would expect to be clear, 2026, 2027, really to be heavy in the qualification phase while slowly ramping that up as we go through it.

Okay, great.

Does that give you some color there?

It helps, yes. Thank you. And if you could just, could you just give us a sense of relative to Q4 and Q3, how much pressure are you seeing from import markets today? Has it improved? Are you seeing more or less and kind of is that being impacted by whatever people think might be happening with tariffs?

Right. So let me just stress when we talk about imports, I'm really talking about higher imports. I'm talking about the imports that impact my customers. And in that sense, we really did not see a let up. We. And if you listen to some of the large tire companies and their earnings releases, they're all saying the same thing, they were heavily impacted by imports. Keep in mind in the United States, it's a matter of imports from rest of Asia, not really from China, that's heavily tariff. In Europe it's heavily impacted by exports from China. South America, also more China. So different regions have different elements of what the import regime would look like. It's not like there's no carbon black traded, but like the big thing for us I'd say is really tire demand.

Okay, so you haven't seen a let up in Q4?

No, I haven't and I would not be banking on. I mean opportunistically is good for us because I try to make it clear in the call like we don't know how exactly this is going to play out. And it's our job to be nimble, to be opportunistic, to make the most of this, however it plays out. But not to be sitting here with a strategy that we're hoping for. Right. I'm prepared for that not to happen and for imports to stay right where they are. That's the world we got to be ready to navigate. And if we see tariffs, it's all an upside.

Fair and understood. Thank you.

I think we have one follow up from Josh, is that right?

Yes, we do. Josh Spector with UBS.

Yes, thanks. If you guys don't mind a few kind of buttoning up of a few items. So first, just on La Porte, I think your last answer was helpful, but I just wanted to understand if we should assume any earnings contribution in 2026 or whether that's actually a drag because all the costs are there and it's not fully ramped. So is that a positive or negative item for 2026 EBITDA?

I put it net it's going to be negative. Certainly the early quarters we're going to have the operating costs and the labor costs and it's going to take a while to do it. So I would not look for that to be a contributor in 2026. And that element we put out is the free cash flow projection. Right. That's really heavily driven by just reduced capital because we've completed that and we don't need to build another one right now.

Okay, thanks for that. And then I wanted to just ask as well, kind of a follow up to Jon's question around Russia. I mean, I'll walk through some simple math and I'd just be curious on your thoughts here. I mean, I guess investors are looking at your rubber earnings about $100 per ton EBITDA level above what they were pre pandemic, call it around 700kt of rubber supply, about 40ish percent of that into Europe. You run through that math, if things reset, you're in a $25 million to maybe $30 million negative. From your answer to Jon, it sounds like that's not the math that should be done. I'd argue the market's pricing in more than that as a headwind. What are your thoughts about how we should think about what that normalization could look like?

Yes, so I would say I would be thinking if you think about put yourself in the shoes of a buyer trying to keep a factory running that makes tires in Europe, I think the local supply is still going to be what you want. So a supply chain stretching from India or China I think is going to lose some of that share to a supply chain coming in from Russia. Even with all the, concerns and all of that. I think it's really going to be a shift and where they import from. And keep in mind we and our competitors conserve, not quite two thirds of the European market. Well, it depends on how many tires are being made. So let's say two thirds of the market, a third has got to be imported. I think it's really going to shift around that part of it. And again, we were raising prices before the war. And keep in mind, also Russian carbon black was only banned last summer. So I think that that concern is a little bit overstated. That's my opinion.

Okay, thanks. I'll leave it there and chat more offline. Thanks, guys.

Okay, thank you.

Okay, I think that then wraps it up for questions. Just really appreciate everybody's time and interest and the questions. Once again, I'd say, like the big message here is that last slide, the free cash flow inflection. We do not need to continue to spend in the way we have. That's just going to open up free cash flow for us. We've got a number of things we can do with it. I think that's a just, a big move for us. Next up, just so we all know, we'll be at multiple investor conferences and we'll be doing a couple NDRs in the coming months. And we look forward to the engagement and hope to see some of you there. Have a good rest of your day. Thank you very much.

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