Good day, everyone, and welcome to the Orion First Quarter 2025 Earnings Results Conference Call. [Operator Instructions] Please be advised that today's call is being recorded. [Operator Instructions]. I'd now like to turn the floor over to Chris Kapsch, Vice President of Investor Relations. Please go ahead.

Thank you, Jamie. Good morning, everyone. This is Chris Kapsch, VP of Investor Relations at Orion. Welcome to our conference call to discuss our first quarter 2025 earnings results. Joining our call today are Corning Painter, Orion's Chief Executive Officer; and Jeff Glajch, our Chief Financial Officer. We issued our first 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, as you know, we are obligated to remind you that some of the comments made on today's call are forward-looking statements. These statements are subject to the risks and uncertainties 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, May 8, 2025. 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 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. With that, I will turn the call over to Corning Painter.

Good morning. Thank you, Chris, and thank you all for your interest in Orion and for joining our call today. Before getting into some details regarding the first quarter results, we wanted to discuss 3 central themes to help you get a sense for how we're positioned as global trade continues to rebalance around the world. First, we'll touch upon Q1 results in a broad sense. Yes, a challenging start to the year, but the numbers are not indicative of a stronger underlying performance and certainly Orion's greater potential. Second, we'll discuss how we expect the current tariffs to affect our value chains, but in a bigger picture sense also about how the new paradigm on global trade policies will likely benefit the carbon black industry given its regional and localized nature and Orion in particular. Finally, we fully recognize the increased likelihood of an economic recession. With this possibility and although we do not see a pronounced weakening in our order books at this juncture, we are taking additional protective measures to manage costs and bolster free cash flow. These coupled with other dynamics within our business enable us to reaffirm our free cash flow guidance for the year. On Slide 3 of the earnings deck, we convey several items affecting first quarter results including multiple unplanned plant outages; which impacted productivity, absorption levels and other transient costs as well as adverse timing effects mainly tied to contractual pass-throughs of raw materials. Collectively, these factors masked at least $10 million of greater earnings power in the first quarter alone, implying our business' Q1 underlying earnings power being more in the mid-$70 million range for EBITDA. Even at a higher level, it wouldn't showcase the earnings capacity of Orion because of the impact of elevated imports on Western tire manufacturers…

Thanks, Corning. Slide 7 is important. We are focused on our free cash flow improving $100 million compared with 2024 and being free cash flow positive in 2025. Despite the lower EBITDA guidance, we are reaffirming our full year free cash flow expectations. We are not going to let the increased market uncertainty undermine our commitment here. In addition to the further belt tightening measures that Corning mentioned, we have also reduced our 2025 CapEx spending expectations by $10 million to $150 million, down $57 million from 2024. Furthermore, we have initiated programs that should improve our cash flow conversion. These actions should enable working capital to be a source of cash in 2025. And while penciling in a modest improvement in 2025 walk for working capital, if current oil prices prevail, the benefit should be materially higher. On Slide 8, we share KPIs for the overall business and the year-over-year EBITDA bridge. Volumes were up 1% compared with last year's first quarter and improved 10% sequentially. We had expected better volumes and believe demand was constrained by factors which I will discuss shortly. Notably, the most pronounced volume improvement came from low margin regions, specifically South America and Asia. Here we benefited from additional lanes and improved operations, respectively, but these volumes came with an adverse regional mix impact, which shows up as a headwind to volume in our EBITDA bridge. The biggest challenge in the quarter were higher costs, primarily a function of unplanned downtime due to equipment failures and unfavorable timing, which were partly offset by a favorable Q1 inventory revaluation. Despite the dollar's recent weakness, it was stronger on average throughout Q1 compared to Q1 of 2024 so this represented a headwind in our EBITDA comparison. This should inflect starting in Q2 assuming current FX rates…

Thanks, Jeff. So okay, a challenging start to the year, which we own, but I offer you 3 key takeaways. Number one, our underlying earnings capability was obscured. Business conditions are better than our numbers reflected this quarter. Number two, the Orion team remains committed to delivering free cash flow this year. And number three, we are the beneficiary of the changing global trade paradigm. There's a lot of noise out there, tariffs shifting this and that, but the direction this is moving is good for Orion. And with that, we see an opportunity to exhibit more resilience than much of the broader chemical industry as we navigate this backdrop. With that, Jamie, let's open it up for Q&A.

[Operator Instructions] We'll take our first question from Josh Spector with UBS.

I just wanted to ask on the outage impacts in 1Q. So I mean you sized them at around $13 million. Corning, you spent a lot of time talking about some of the challenges with older facilities and other things. But 2 questions here. One, is this fully contained in 1Q or is there any cost that lingers into 2Q? And then two, just kind of talk about the nature of the reliability and the impacts that you've had and the ability to avoid recurrence here. Is this something investors should be concerned about incrementally or do you feel that you've ring-fenced a lot of this or at least resolved this to prevent recurrence?

Sure. Why don't I take actually some of the second part of that question and I'll let Jeff speak on the numbers. So our fleet of plants are aged and with that, as I said in the script, there comes some fragility and unpredictability and that's always been in our numbers, that's always been our results. And what we saw in Q1 was just a clustering of many of these issues in 1 quarter. And if you think about cogen, it was more impactful than it would have been at other times of the year. So I would say we see that as unusual. Not that that hasn't ever happened with us before. I think it is -- but I wouldn't want to say to investor, geez, none of these plants are ever going to have equipment breakage again. We do think the clustering is unusual that we experienced in Q1 and, as I said, the plants are operating well at this time and by and large, the Q1 costs are contained in Q1. Jeff?

Sure. Josh, on the $13 million, that was specific to rubber. Overall, the number was a little bit less than that. About $5 million of it was due to the unplanned downtime, about $2 million or $3 million was related to fixed cost absorption namely an inventory draw because of the unplanned downtime and there was about $2 million or $3 million of timing costs in there also. So that pretty well covers the impact of the issues we had in Q1.

Okay. And I guess, can you talk about the cadence of earnings at all? So I mean was 2Q -- I guess if we add back the outage impacts, you talked about demand okay and you mentioned something around inventory impacts. So what's the expectation that we should see in 2Q? And then do you need an improvement in macro environment to hit what you need to do for the rest of the year or frame the macro assumption there?

Josh, I'll take the first part of that and maybe Corning can take the second part. So on the second quarter, we did mention these onetime events we think are past us. The 1 thing we will see in the second quarter as oil prices have declined from roughly $70 a barrel at the end of Q2 to right now roughly $60, we will see a bit of an inventory hit in the second quarter. And that's incorporated into our guidance between the inventory hit and a little bit weaker demand overall in specialty compared to what we'd like to see or we expected to see earlier. That's why we lowered our guidance by $20 million; $10 million in the first quarter, about $10 million in the second quarter. I think Corning can talk maybe in more detail, but I think we would expect to see a stepup relative to that as we get into the third quarter, again not having this impact of the lower oil price inventory revaluation. I think 1 [indiscernible] relevant here is we've got lower oil, which will have a negative impact on our ongoing earnings excluding this inventory revaluation. We have what right now appears to be favorable foreign exchange, the 2 pretty much cancel out. So going forward, those 2 should cancel out, but we do have a onetime impact of inventory revaluation in the second quarter.

Yes. So when I think about the second quarter, I wouldn't expect the special factors that impacted Q1, the inventory revaluation in Q2. I do think that also as we move through the year and we see the impact of these tariffs, I mean it's quite significant, 25% on imported tires. Then we'll see that building in terms of demand for manufacturing in the U.S. and North America in general, that that will be a plus for us. I think beyond that, it's going to set us up for a promising 2026 where we'll see our tire customers having more confidence looking to boost their manufacturing plans for 2026 and with that, they're being interested in security of supply.

We'll hear next from Laurence Alexander with Jefferies.

This is Dan Rizzo on for Laurence. I'm sorry, did you say the benefit from the tariffs? I mean did you give a time frame of when you probably should start to see that with your customers? Did you say in the second half of the year?

Yes. I think that when we talk to tire companies, that's the kind of number you hear about. I think I referenced it. We had a recent conversation with 1. Surely there has been some inventory build of the imported tires that's going to have to be worked through. The exact timing is a little hard to say. So we would expect then to see that in the second half. In fairness, the caveat that that tire customer said is they had some concerns about what was going to happen with freight traffic, which would push it in the other direction.

Does something more have to happen or are tire companies considering building more in the U.S. and I mean what's the cost and time frame? I mean when could there be like a structural change for that?

Well, so look, tire companies have been shifting capacity or building capacity in the U.S. and to a certain degree in Europe as well. So that trend is well underway. I think maybe it was Michelin who was thinking of doing 4 expansions in Mexico. I wonder in this world if they would continue maybe with some of that, but maybe shift more of that over to the U.S. We'll see as that time frame plays out. We would expect to see I think Hankook announce that they'll be starting up their second line doing TBR tires later this year. So that movement is happening. And I think just the whole change in direction of like just the whole paradigm about global trade, all that's going to continue to incent people to add capacity where the demand actually is.

Okay. And then last question. So in your Specialty Black business. I mean you're not seeing customers draw down inventory there or kind of being a little more cautious because others have kind of -- I mean it's been mixed, but others seem to think so.

Yes. I would say the closest it comes to seeing that behavior is we have seen distributors slow down a bit for us so maybe that's consistent. But choppy is the word and believe it or not, like ink was really strong. So I would just say you really have to see these trends play out for several quarters to have clarity on them. It's more choppy I'd say than crystal clear right now.

Our next question comes from John Roberts with Mizuho.

Is that run rate EBITDA of mid-$70 million also indicative of the June quarter conditions exclusive of the oil price inventory revaluation?

Well, I mean we're relatively early in the quarter, right, and it's a pretty dynamic time. But yes, I'd say so.

And then South America has been under import tire pressure as well. Could you discuss your operations down there?

So as I said, look, our actual operation of our facility has improved a lot over the last couple of years. Our operations are really pretty strong in South America right now. Obviously we picked up some volume, but I would say I think there's been broader shifts I guess in that market.

[Operator Instructions] We'll hear next from Jon Tanwanteng with CJS Securities.

This is Will on for John. Can you provide more detail on the headwind from timing of input costs and if that reverses out in future quarters?

So probably 1 of the biggest moves we had was really just in natural gas in the quarter. There's always the potential for a slight mismatch. There's also differentials, which can move slightly different from the oil prices. But I wouldn't expect that to be a headline and sometimes when you lose 1 quarter, you gain another.

And then are you including any sort of net impact or benefit from tariffs in your outlook? And how do you balance potential upside from reduced import competition against lower freight activity and potential lower replacements and lower auto sales?

Again, we really go with what our customers are forecasting to us moving forward. And I would say in our customers' outlook like everybody is cautious, everybody is concerned; but we don't see a real like guidance from them about really seeing a recession in their business at this time. And at the same time, nobody is like taking up their forecast because, oh, they think there's going to be a big huge increase in the second half. I'd say they're continuing with a slow build through the year.

And ladies and gentlemen, as there are no further questions at this time, I'd like to turn the call back over to Corning Painter for any additional or closing comments.

Once again, I'd like to thank you all for joining us today. I'd like to highlight that we have multiple investor events coming up over the next 1.5 months, including an NDR in New York next week, a virtual CJS Securities Conference next Wednesday also, a Wells Fargo Industrial Conference in Chicago in early June and a UBS Virtual Conference later in June. So a number of opportunities there and we're looking forward to the chance to talk to many of you and have some great engagement. Thank you all very much.

Thank you. Once again, ladies and gentlemen, that will conclude today's call. Thank you for your participation. You may disconnect at this time and have a wonderful rest of your day.