Ladies and gentlemen, greetings, and welcome to the Orion S.A. Second Quarter 2025 Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Mr. Chris Kapsch, Vice President of Investor Relations. Please go ahead.

Thank you, Ryan. Good morning, everyone. This is Chris Kapsch, VP of Investor Relations at Orion, and welcome to our conference call to discuss second quarter 2025 results. Joining our call today once again are Corning Painter, Orion's Chief Executive Officer; and Jeff Glajch, our Chief Financial Officer. We issued second 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, August 7, 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. All 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 over to Corning Painter.

Good morning. Thank you, Chris, and thank you all for taking time to join our conference call. Before discussing some industry trends and digging into Q2 results, I wanted to briefly express my gratitude to Chief Financial Officer, Jeff Glajch, who after nearly 4 years with Orion will be retiring in the fourth quarter. Jeff's leadership and guidance will be genuinely missed throughout the organization. We've commenced a formal search process and we appreciate Jeff's intent to help ensure a smooth transition through the end of the year. Turning to Slide 3. The $69 million of adjusted EBITDA we generated during Q2 was in line with our expectations, and that was despite demand headwinds that became more acute during the quarter. Overall, volumes were up 3% year-over-year in the quarter, but declined a little more than 4.5% sequentially. A markedly improved manufacturing performance at our plants was a key driver of the higher sequential earnings. As we had indicated last quarter, the level of unplanned downtime during Q1 was anomalous and our efforts to drive better plant performance through operational excellence initiatives are now starting to bear fruit. I mentioned demand headwinds. Here, we experienced this in both segments in Q2. Affecting our rubber business, there was a surge of tire imports into the U.S., presumably to beat the early May automotive sectorial tariff deadline. We believe this continue to weigh on local tire manufacturing rates and therefore, our demand. In Specialty, and you've seen this across the broader Chemicals segment, uncertainty resulting from the lack of tariff clarity possibly some destocking in polymer end markets and economic malaise more generally have translated into a softer demand environment, and Orion was not immune. Despite this difficult backdrop, some of our more profitable Specialty product lines have exhibited resilience, and we…

Thanks, Corning. Before I start, I do want to thank Corning for his kind words earlier. As we announced last week, I have decided to retire in a couple of months but I intend to not only support Orion's search for a new CFO, but then to continue with the transition through at least year-end and perhaps even into early 2026. I've enjoyed my 3.5 years of Orion. I decided to retire for personal reasons and have only true respect for our Orion team. Finally, my opinion is with the tariff headwinds that Corning mentioned earlier, we could be on the precipice of a ramp-up in volume as we look at 2026. Now on to our Q2 results. On Slide 7, you'll see our business exhibited resilience in Q2, with volumes improving 3% year-over-year. We saw growth in our rubber business, but a decrease in Specialty due to hesitancy across our customer base, particularly related to automotive OEMs and the polymer supply chain, our highest volume specialty end market. While total Orion profitability was down year-over-year, reflecting adverse geographic and product mix and pricing, these variances were partially offset by lower cost and a greater cogen contribution. Gross profit per ton improved sequentially, thanks largely to better operating performance, enabling greater fixed cost absorption. Overall, cost improvements benefited from self-help actions which were obscured by the adverse inventory revaluation, which we had called out on last quarter's call due to lower average oil prices across Q2. On Slide 8, our rubber business delivered 7% higher volumes year-over-year and 4% higher adjusted EBITDA. The volume improvement was expected a function of the 2025 contract outcomes and would have been better if not for import-related headwinds across the western markets in which we operate. As Corning noted, imports continued to increase compared…

Thanks, Jeff. Before moving to Q&A, let me just summarize a few key takeaways captured on Slide 13. We're pleased with the sequential earnings improvement partially enabled by our better overall plant performance. We look to build on better operating metrics through continuous improvement and manufacturing excellence programs, which, as we mentioned, are gathering momentum. Despite the in-line second quarter result, and let me be clear about this point, we by no means complacent. Our intensified focus goes beyond simply weathering the challenging backdrop and is focused on positioning Orion to demonstrate much greater earnings power for winning the business cycle and other factors inevitably inflect in our favor. We do expect to see demand benefit from the new tariff paradigm in late '25 or early 2026 even as our tire customers are hardly likely to acknowledge this reality as supply contract negotiations for next year progressed in earnest. Finally, I just want to reiterate that through all of this, driving free cash flow improvement remains the company's highest priority after safety at this juncture. If there are tactical decisions that improve cash flow at the expensive P&L, we will make that trade all else equal. In short, we fully intend to achieve our 2025 free cash flow guidance and setting us up for even greater free cash flow next year. And with that, Ryan, please open up the lines. We'll be happy to take people's questions. Thank you.

Ladies and gentlemen, we will now begin the question-and-answer session. [Operator Instructions] The first question comes from the line of Josh Spector from UBS.

It's Chris Perrella on for Josh. I just wanted to ask about the step-up in earnings in the second half of the year compared to the 2Q base, how much of that is volume growth? How much of that is the self-help? Can you just kind of dig into the details of how you see -- or what's in your assumptions in the guidance?

Sure, Chris. This is Jeff. A couple of things. First off, if you recall in our Q2 numbers, we have this $5 million inventory revaluation. So Q2, excluding that would have perhaps been more in the mid -- closer to the mid-70s than where we were at. I think as we look forward, from a volume standpoint, I wouldn't see it necessarily a step up in volume. I think if we look at the rubber business, for example, compared to where we were in Q2, I think we would be relatively in line with that, which will still be year-over-year growth. But on a sequential basis, wouldn't necessarily see much of an increase. . I think specialty, maybe we see a little bit of a pickup in volume. But again, given where the markets are right now, it's a little bit challenging. So I think really, it's -- first off, it's that more normalization of Q2. And then I think as you noted, some of the cost actions we've taken, while we benefited so far, we will see at least that benefit in the second half of the year.

I appreciate the color on that. And then the question on the cash balance at the end of the year. What actions do you have? Or could you elaborate a little bit more on other levers that you have to pull yet to hit that target?

Sure. So if you think about working capital, there's 3 levers. There's receivables, there's payables, and there's inventory. We've done quite a good job on receivables over the past couple of years starting in 2023. So not a lot there right now. The inventory, we took our inventory down, as Corning noted $27 million in Q2. I'd say between now and Q4, I think there's more of an opportunity to take that down. It may not happen in Q3 and part of the reason would be we've got some shutdowns in early Q4, some turnarounds and when we do that, we want to build up a little inventory beforehand. So you probably won't see in Q3, but perhaps you'll see a little bit in Q4. And then on the payable side, we've got some activities that we're looking at that. I don't want to go into too much detail yet but they may help us as we get toward later into 2025 and then also further more in 2026.

I appreciate that. And Jeff, enjoy the retirement.

Thanks, Chris.

The next question comes from the line of Kevin Estok from Jefferies.

So just curious on the tariffs. I guess [Technical Difficulty]

Kevin, I do apologize to interrupt you, but your audio is not coming in clear.

Can you hear me now?

A little better. I think if you can just try talking really softly or slowly, let's try that.

Okay. So on tariffs, I was just wondering, I guess, do you expect production to initially come back to Mexico, let's say, before the U.S.? And just on the tailwind itself. Have you thought about quantified....

Kevin, again, I do apologize, you audio is not coming in clear.

So Kevin, I heard the first half of that. Do we expect production to be revert more to Mexico than the U.S.? No, we don't. I think it would be broadly felt. Maybe if you could try a different line and then get back in the queue, it's very hard to hear you.

We take the next question from the line of Jon Tanwanteng from CJS Securities.

I was wondering if you could talk about what you're expecting in Q4. It's going to be the traditional seasonal downtick or if maybe there's more tariff certainty, perhaps rates are lower, inventories are drawn down, if that might be a little bit different or people might still be cautious.

Well, it's -- Jon, excellent question, and I wish I can tell you with great certainty what's going to happen in Q4. I think there's a possibility we could see a stronger Q4 given the whole tariff paradigm. But it's I think very early to call that out with a lot of confidence right now.

Okay. Great. And then if you could just expand a little bit more on the structural versus temporary discussion on imports -- are imported tires at the lower grades that you're talking about, are they -- with the tariffs now, are the prices now in line with what domestic tire companies offer your customers? Or is this still a price gap, I guess, with the tariff there?

Yes, I'd say there's still a price gap, and it's a little bit apples to orange. So the domestic producers, which are the global companies, not just U.S. companies who operate in the United States, I would say they primarily associate them with their Tier 1 brands, just about all of them have a Tier 2 brand as well. And in both of those brands, they tend to be offering a tire, which comes with a mileage warranty and things like that. So the value proposition they're offering is somewhat better than, let's say, a Tier 3, Tier 4 imported tire is. So I think what the tariffs achieved, the 25% automotive tariff is it closes that gap quite considerably for them in terms of selling against it. And you do see some signs of those major premium tire companies investing a bit more advertising in their second tier lines right now. And I think, yes, they still cost a little bit more, but they offer you more of a warranty, there's more there to sell in terms of value-add cost of ownership. Does that answer your question, Jon?

It does. I'm just curious as to if you've seen any reversion to the higher value versus the lower price in the end markets from just a consumer mix perspective or if that continues to trend towards the lower price?

I wouldn't say we're like our position in the supply chain that we're going to be the first guys to see it. What I would say is that for some of the majors, their second-tier brand tire factories have performed better in the course of this year than their premium lines in terms of simply volume taken relative to plan.

Okay. Great. Last one, if I could sneak one in. Just any incremental tariff impacts from the August 1 announcements? I think you mentioned India. I don't know if there's anything else that was either a headwind or tailwind that might impact you guys. Any updates there would be helpful.

So the biggest thing for our customers is simply the 25% automotive tariff, and that includes replacement tires. And that's the 232. It's a section separate item, so not really part of the reciprocal tariffs. So even somebody who has a 10% tariff rate, for example, automotive parts are subject to that. So that's, I think, a real positive, steady thing for it. There's not a lot of carbon black imported into the Americas. But in the U.S., there is some coming out of India. So I think 25% and just yesterday, another 25%, total of 50%. I'm not saying I'm sure it's going to stay at that level. But any elevated tariff level on India is also something that would make that imported carbon black from India, I think just less economically viable. I think a tariff in the 10%, 15% to 25% range would be meaningful as well in that space.

The next question comes from the line of John Roberts from Mizuho Securities.

Thank you, and thanks, Jeff, for your service. On Slide 4, is the implication that the area between the 2025 import line in the upper dash line, that area represents the excess imports. So do we need to see that 2025 line go below the dash line by an equal area to rebalance the market?

Well, I think any decline in that prior to where it was in '24 or dare to dream '23, whatever, in 2019, any downward movement in that is improvement from the perspective of our customers, our customers doing better is ourselves doing better. So if you're talking about getting back to when it was more like in the low 50s, certainly, let's say, like 2029 -- 2019, excuse me, was the time frame when we're in that kind of range. Does that get what you're after there, John?

Well, yes, just to know how far down we have to go to, you would think inventories would be, say, normalized?

Well, so inventories is a different question, right? So I think inventories is this question of the surge of product came in, and that's going to have to get sold through, and that's going to be out there at the tire dealers right, in their shops, competing with those, let's say, Tier 2 brands of the major tire companies. And our tire customers, nobody has great visibility to that. Our tire customers would say they expect that to be burned down, let's say, over the course of the remainder of this year. . But in terms of tire manufacturing, the underlying signal for where this market is going, that's all about this import rate. And any downward movement in that is good and you can just pick your year and say, well, what would it be like if it was less than '22, '23 blah, blah, blah, all the way down to '19. But the speed with which it declines is probably says a little bit about how quickly the inventory gets burned down. But I think the real signal there is just for what we can expect for demand going forward.

Okay. And then the Cabot transaction in Mexico seemed like a unique opportunity for them, and you earlier did the LyondellBasell transaction in Europe. Are there many other captive carbon plants around the world that we could see some further consolidation here?

Very limited in terms of captive, yes. I mean, there is consolidation that's possible against maybe some of the -- especially some of the smaller carbon black companies that are out there. I think that's possible. But in terms of really a captive thing, it's quite limited.

Thank you. Ladies and gentlemen, as there are no further questions, I would now hand the conference over to Mr. Corning Painter for his closing comments.

Okay. Well, look, thank you again for your attention. Once again, Jeff, thank you very much for your service over the last 3.5 years. We'll miss you. We will be back out on the road meeting with investors. We'll be at the Mizuho, the UBS and the Jefferies Conferences in New York in the coming weeks, and we look forward to engaging with many of you at those events in person. So I wish everyone a good rest of your day. Thank you for your time.

Thank you. Ladies and gentlemen, the conference of Orion SA has now concluded. Thank you for your participation. You may now disconnect your lines.