Summary of Orion Engineered Carbons Conference Call Company Overview - **Company**: Orion Engineered Carbons (Ticker: OEC) - **Headquarters**: Luxembourg, executive offices in Spring, Texas - **Industry**: Carbon black manufacturing - **Market Position**: Leading global manufacturer and supplier of carbon black products, primarily rubber carbon black and specialty carbon black [1][2] Financial Highlights - **Shares Outstanding**: Approximately 56 million - **Market Cap**: $280 million - **Net Debt**: $918 million - **Enterprise Value**: $1.2 billion - **Recent Revenue**: EUR 1.8 billion - **EBITDA**: EUR 248 million - **Free Cash Flow**: EUR 55 million [2][9] Strategic Focus - **Free Cash Flow Generation**: Identified as the primary financial priority for 2026 and beyond, with a focus on improving cash flow through working capital actions and reduced capital expenditures [7][13] - **Debt Reduction**: Aiming to reduce net debt, which was approximately 3.7x net debt to EBITDA at year-end [14][41] Market Dynamics - **Rubber Carbon Black**: Represents two-thirds of the business, with a focus on tire applications (OEM and replacement tires) and mechanical rubber goods [16][17] - **Specialty Carbon Black**: Accounts for one-third of the business, with applications in polymers, coatings, and batteries [19][20] - **Growth Drivers**: Traditional growth driven by miles driven, tire production, and vehicle production, with emerging trends in sustainability and electric vehicle (EV) mobility [18][23] Pricing and Contracts - **Pricing Strategy**: A variable price surcharge of up to 25% was introduced, primarily affecting the specialty side of the business, as most rubber customers are under annual contracts [49][50] - **Market Conditions**: Anticipated challenges in pricing negotiations for 2026 due to high imports and late negotiation cycles [40][41] Production Capacity and Regional Focus - **Capacity Utilization**: Estimated at mid-80s percentage for effective capacity utilization, with regional dynamics affecting supply [56] - **Local Supply Importance**: Emphasized the critical nature of being a local supplier to tire manufacturers in North America, especially given the lack of new carbon black capacity being built in the U.S. [35][36] Environmental and Regulatory Considerations - **EPA Investments**: Significant investments made in compliance with EPA regulations, with competitors still facing these costs, potentially benefiting Orion in terms of pricing and market position [37][38] Future Outlook - **2026 Projections**: Expected EBITDA between EUR 160 million and EUR 200 million, with free cash flow projected at EUR 25 million to EUR 50 million [42] - **Market Recovery**: Anticipated improvement in market conditions and pricing environment, driven by reduced capacity in the market and better economic indicators [34][41] Additional Insights - **Customer Relationships**: Strong relationships with global tire customers are expected to provide opportunities for spot volume [30] - **Safety and Reliability**: Achieved record safety performance, significantly better than industry average, contributing to operational reliability [39] This summary encapsulates the key points discussed during the conference call, highlighting Orion Engineered Carbons' market position, financial performance, strategic focus, and outlook for the future.

Core Viewpoint - Orion S.A. is increasing prices by up to 25% and introducing a variable surcharge for its Specialty segment customers due to rising costs, supply chain disruptions, and feedstock cost volatility primarily linked to the ongoing conflict in the Middle East [1] Company Overview - Orion S.A. is a global specialty chemicals company and a leading supplier of carbon black, which is utilized in various applications such as tires, coatings, inks, batteries, and plastics [1] - The company operates 15 production plants worldwide and has four innovation centers, offering a diverse range of production processes in the industry [1] - Orion has a corporate lineage of over 160 years, originating from Germany, where it operates the world's longest-running carbon black plant [1] Price Increase and Surcharge - The price increase of up to 25% and the introduction of a variable surcharge will take effect immediately or as contracts allow [1] - This decision is driven by the need to address the financial pressures resulting from increased costs and supply chain issues [1] Sustainability Rating - Orion S.A. has earned a Platinum rating from EcoVadis for its 2025 performance, placing it in the top 1% of companies evaluated globally [1] - The EcoVadis assessment evaluates performance across four areas: environment, ethics, sustainable procurement, and labor and human rights [1]

Company Announcement - Orion S.A. will hold its 2026 annual general meeting on June 25, 2026, at 2 p.m. Central European Time, at its office in Luxembourg [1] - The record date for shareholders to attend the meeting is set for April 23, 2026, at 11:59 p.m. Central European Time [1] - The meeting will be conducted in person and streamed online, allowing virtual attendance and remote communication for shareholder rights [1] Company Overview - Orion S.A. is a global supplier of carbon black, a material used in various applications such as tires, coatings, inks, batteries, and plastics [1] - The company operates 15 production plants worldwide and has four innovation centers, offering a diverse range of production processes [1] - Orion has a corporate lineage of over 160 years, with its longest-running carbon black plant located in Germany [1] Financial Performance - For the full year 2025, Orion reported net sales of $1.8 billion, reflecting a 4% decrease from the previous year [1] - The decline in sales was attributed to a 7% drop in prices, influenced by lower oil prices, although there was a 2% increase in volume and favorable foreign currency translation [1] - The company faced challenges due to high levels of lower-tier tire imports and soft demand in key industrial markets [1]

Core Viewpoint - Orion S.A. has declared an interim quarterly dividend of $0.0207 per common share, amounting to approximately $1.2 million, to be paid on April 2, 2026, to shareholders of record as of March 12, 2026 [1] Company Overview - Orion S.A. is a global specialty chemicals company and a leading supplier of carbon black, which is utilized in various applications such as tires, coatings, inks, batteries, and plastics [1] - The company operates 15 production plants worldwide and has four innovation centers, emphasizing its diverse production processes and commitment to sustainable solutions [1] Financial Performance - For the full year 2025, Orion S.A. reported net sales of $1.8 billion, reflecting a 4% decrease from the previous year, driven by a 7% decline in prices, partially offset by a 2% increase in volume and favorable foreign currency translation [1] Safety Record - In 2025, Orion S.A. achieved a safety record that was nine times better than the industry average, with only three employee injuries, resulting in a Total Recordable Incidence Rate (TRIR) of 0.18 per 200,000 exposure hours, marking the second-best year in the company's history [1]

Core Viewpoint - The optimal time to invest in cyclical stocks is just before the business cycle reaches its lowest point, as this typically presents an attractive entry point despite negative earnings trends [1]. Group 1 - The earnings trend for cyclical stocks appears negative at the bottom of the business cycle, which can be misleading for potential investors [1]. - Improving external conditions are expected to drive earnings growth in the future, leading to a potential re-rating of these stocks [1].

Core Insights - Gabelli Funds will host its 17th Annual Specialty Chemicals Symposium on March 19, 2026, in Midtown Manhattan, focusing on industry dynamics, current trends, and business fundamentals in the specialty chemicals sector [1][2]. Group 1: Event Details - The symposium will feature discussions with leading companies and organizations within the specialty chemicals ecosystem [1]. - Attendees will have the opportunity for one-on-one meetings with management teams, and a webcast option will be available for those unable to attend in person [2]. Group 2: Presenting Companies - The symposium will include presentations from notable companies such as Arq, Inc., Ashland Global, BASF SE, and The Chemours Company, among others [3]. - A total of 12 companies are listed as presenters, with some indicating virtual attendance options [3][4].

Financial Performance - In 2025, net sales decreased by $70.8 million, or 3.8%, to $1,806.7 million from $1,877.5 million in 2024, primarily due to lower oil prices, despite higher volume in the Rubber Carbon Black segment [200]. - Gross profit fell by $69.0 million, or 16.1%, from $428.8 million in 2024 to $359.8 million in 2025, driven by unfavorable product mix and raw material cost pass-through effects [201]. - Adjusted EBITDA decreased by $54.2 million, or 17.9%, from $302.2 million in 2024 to $248.0 million in 2025, primarily due to lower volume in the Specialty Carbon Black segment [217]. - Comprehensive loss for 2025 was $72.5 million, a decrease of $86.7 million from a comprehensive income of $14.2 million in 2024, mainly due to a decline in net income [208]. - The company experienced a loss of $70.1 million in 2025, compared to a net income of $44.2 million in 2024, marking a decline of $114.3 million or 258.6% [199]. - In 2025, the company reported net sales of $1,806.7 million, a decrease from the previous year, with a net loss of $70.1 million and Adjusted EBITDA of $248.0 million [220]. Segment Performance - The Specialty Carbon Black segment generated Adjusted EBITDA of $93.5 million, accounting for 34.2% of total revenue and 37.7% of total Adjusted EBITDA in 2025 [220]. - Net sales for the Specialty Carbon Black segment decreased by $27.8 million, or 4.3%, from $646.3 million in 2024 to $618.5 million in 2025, mainly due to lower demand and the pass-through effect of lower oil prices [223]. - The Rubber Carbon Black segment saw an increase in volume by 25.8 kmt, or 3.7%, from 689.0 kmt in 2024 to 714.8 kmt in 2025, primarily due to higher demand in the Americas and Asia Pacific regions [225]. - The Rubber Carbon Black segment's net sales decreased by $43.0 million, or 3.5%, from $1,231.2 million in 2024 to $1,188.2 million in 2025, attributed to lower oil prices despite higher volume [226]. Expenses and Taxation - Income tax expense increased significantly to $35.8 million in 2025 from $9.7 million in 2024, with an effective tax rate of (104.4)% compared to 18.0% in the previous year [207]. - Selling, general and administrative expenses decreased by $7.1 million, or 3.0%, from $237.8 million in 2024 to $230.7 million in 2025, attributed to cost-saving measures [202]. - Interest and other financial expenses rose by $12.9 million, or 26.1%, from $49.4 million in 2024 to $62.3 million in 2025 [199]. Cash Flow and Liquidity - Free Cash Flow for 2025 was $54.8 million, a significant improvement compared to a negative $81.4 million in 2024, driven by increased net cash provided by operating activities [233]. - As of December 31, 2025, the company had liquidity of $253.7 million, including cash and equivalents of $60.7 million and $193.0 million available under the committed RCF [231]. - Net Working Capital decreased to $293.9 million as of December 31, 2025, down from $346.1 million in 2024, influenced by changes in accounts receivable and inventory levels [238]. Debt and Capital Expenditures - The company's gross debt balance increased to $981.9 million as of December 31, 2025, an increase of $73.2 million compared to the previous year, primarily due to currency fluctuations [242]. - Capital expenditures in 2025 included $66.9 million for the construction of a facility in La Porte, Texas, with adjustments made to the construction timeline based on market conditions [235]. Risk Management - The company is exposed to interest rate risk, with a hypothetical 0.50% increase in interest rates resulting in a decrease of $5.4 million in total comprehensive income before taxes [259]. - A 10% fluctuation in the euro/U.S. dollar exchange rate could lead to an FX gain of $8.2 million or a loss of $10.0 million, impacting income before taxes [261]. - The company reported net exchange rate foreign currency losses of $6.9 million, $1.6 million, and $4.0 million for the years 2025, 2024, and 2023, respectively [266]. - Approximately 65% of the company's volume is sold based on formula-driven price adjustment mechanisms for changes in raw material costs [268]. - The company aims to mitigate commodity risk through worldwide purchasing activities and optimized procurement processes [267]. - A 10% fluctuation in underlying currencies with no central bank restrictions would have impacted earnings by approximately $12.5 million, $5.2 million, and $2.8 million for the years 2025, 2024, and 2023, respectively [265]. - The company utilizes derivative financial instruments solely for hedging purposes to manage foreign exchange, interest, and commodity risks [255]. - The company maintains a balanced position in foreign currencies to minimize exchange gains and losses [262]. - The company has established a systematic financial and risk management system to mitigate market risks [255]. - The company’s term loans are variable interest rate instruments, exposing it to market risk from changes in the yield curve [257].

ORION S.A. HOUSTON—February 17, 2026—Orion S.A. (NYSE: OEC), a specialty chemical company, today reported full year 2025 Net sales of $1.8 billion in 2025, a 4% decrease from the prior year, consisting of a 7% decline in price, including the pass-through effect of lower oil prices, offset by a 2% increase in volume and favorable foreign currency translation. Historically high levels of lower-tier tire imports into the Western Hemisphere and persistently soft demand in key industrial end-markets including tr ...

Core Insights - Orion reported better-than-expected fourth-quarter and full-year 2025 results, driven by stronger volumes and improved specialty mix [4][6] - The company anticipates continued challenging conditions in key markets for 2026, with a focus on sustaining positive free cash flow despite a projected decline in EBITDA [4][5] Financial Performance - Adjusted EBITDA for 2025 was $248 million, exceeding expectations, attributed to stronger fourth-quarter volumes, particularly in Specialty and Rubber segments [3][6] - Free cash flow for 2025 was $55 million, with net debt reduced by $40 million to $920 million, resulting in a leverage ratio of 3.7x [6][8] - For 2026, Orion guided adjusted EBITDA between $160 million to $200 million and free cash flow of $25 million to $50 million, with capital expenditures reduced to $90 million [5][12][13] Segment Performance - Specialty segment adjusted EBITDA was $94 million, with a 5% volume decrease due to weaker global demand [1] - Rubber segment adjusted EBITDA was $155 million, with a 4% volume increase driven by higher demand in South America and APAC, but a 3% decrease in net sales due to lower pricing [2] Strategic Actions - Orion is implementing cost-saving measures, including a $20 million productivity initiative and rationalizing 3–5 production lines to preserve cash [5][17] - The company is shifting its customer negotiation strategy from trading volume for pricing to a "hold share" approach to maintain market presence [11] Market Conditions - The carbon black industry faces a "uniquely difficult backdrop," with challenges such as elevated tire imports, inflation pressures, and weak PMI affecting specialty demand [10] - Management noted improving underlying indicators, including a potential rebound in freight activity, which could positively impact future demand [16][18] Project Updates - The La Porte conductive-carbons project has been delayed to 2027, expected to add approximately $10 million in annual depreciation upon startup [5][17] - The company is cautious in its outlook, planning for continued challenging conditions while identifying potential upsides from shifts in trade flows and freight recovery [18]

Financial Data and Key Metrics Changes - The company reported full-year EBITDA of $248 million for 2025, exceeding previous expectations due to better-than-expected Q4 volumes, particularly in the Specialty segment [16][17] - Free cash flow for the year was $55 million, attributed to higher-than-expected EBITDA in Q4 and working capital initiatives [17][20] - Net debt at the end of the year was $920 million, with a leverage ratio of 3.7 times, down from 3.8 times at the end of Q3 [21] Business Line Data and Key Metrics Changes - The Rubber segment generated full-year adjusted EBITDA of $155 million, impacted by lower tire production rates in key Western markets and a 4% increase in volumes, mainly from South America and APAC [16][17] - The Specialty segment delivered adjusted EBITDA of $94 million, reflecting a 5% decrease in volumes due to soft global industrial activity [17] Market Data and Key Metrics Changes - The tire industry faced challenges due to elevated imports of lower-tier tires, which affected production rates and contract negotiations [7][9] - Recent trends indicate a reversal in consumer behavior, with Tier two and Tier one tires outselling Tier three brands for the first time last year, suggesting a potential recovery in demand [8] Company Strategy and Development Direction - The company is focused on managing costs and has implemented actions expected to drive $20 million in productivity and efficiency savings [10] - A shift in strategy towards maintaining market share rather than sacrificing volume for pricing has been adopted, aligning with customer needs during challenging market conditions [11] Management's Comments on Operating Environment and Future Outlook - Management expressed cautious optimism about potential recovery in the tire industry, citing improvements in underlying carbon black indicators and a rebound in freight activity [15][25] - The company anticipates generating adjusted EBITDA between $160 million and $200 million for 2026, with free cash flow expected to be between $25 million and $50 million [23][24] Other Important Information - The company achieved a near-record year for employee safety, with only three incidents reported across its global network [6] - An amendment to the credit agreement was successfully negotiated, providing flexibility to navigate through current market conditions [12][21] Q&A Session Summary Question: Guidance and Rubber Segment - The impact of contract negotiations on guidance was discussed, with management indicating that pricing was the largest factor affecting outcomes [27][29] Question: Free Cash Flow Expectations - Management provided insights on expected free cash flow for 2026, emphasizing active management of working capital and capital expenditures [35][36] Question: Capacity and Contracts - Questions regarding capacity under contract versus normal years were addressed, with management indicating a slight decrease in contracted capacity due to lower tire manufacturing trends [41][42] Question: Tax Items and Specialty Segment Timing - A significant tax item related to a goodwill impairment charge was discussed, with expectations for a return to normal tax rates going forward [44] Question: Accounts Payable and Working Capital Management - Management confirmed active management of working capital elements, including accounts payable, and indicated that the current level is sustainable [49][55] Question: Conductive Carbons and La Porte Plant Update - The timeline for the La Porte plant project was extended to 2027, aligning with market demand [56] Question: Tire Shipments into Europe - Management noted that tire imports to Europe were more stable compared to the U.S., with no significant surge observed [58] Question: Pricing Comparisons with Competitors - Management provided insights on pricing changes, indicating a lower percentage decrease compared to competitors [64]