Orion S.A. 2026 Q2 Earnings Call

Good morning, everyone. This is Chris Kapsch, VP of Investor Relations at Orion, welcome to our second quarter 2026 earnings conference call. Joining the call are Corning Painter, Orion's Chief Executive Officer, and Jon Puckett, our Chief Financial Officer. We issued our second quarter results after the markets closed yesterday. We have posted a slide presentation to the investor relations section of our website. We will be referencing this deck during the call. Before we begin, 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 described in the company's filings with the Securities and Exchange Commission, our actual results may differ from those described during the call. All forward-looking statements are made as of today, August 6, 2026.

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. Any non-GAAP financial measures presented in these materials should not be considered as alternatives to financial measures required by GAAP. I will turn the call over to Corning.

Good morning, thank you all for joining us. On the call today, I'll start with a few highlights regarding our strong second quarter results. The Orion team executed extremely well in an extraordinary time, we remain keenly focused on the things that we control. I'll discuss bigger picture trends in our business that supported our quarterly results, as well as some trade flow and regulatory considerations that we view as favorable looking forward. I'll turn the call over to Jon Puckett for a more detailed review of our results before sharing some brief concluding remarks and shifting to Q&A. On slide three, Orion's Adjusted EBITDA improved 26% sequentially to $58 million in the second quarter.

We're particularly pleased with the results in our Specialty Segment, where responsiveness to demand strength, coupled with prompt pricing actions contributing to what is our best quarterly segment performance since early 2022. Specialty's solid Q2 metrics exemplify this business's attractiveness as well as its much greater potential. Robust volume gains were geographically broad-based and across end markets. Timely targeted pricing actions also helped preserve the segment's profit, mitigating extreme feedstock cost volatility. Specialty's excellent results, coupled with our Rubber Segment's steady performance, enable us to reaffirm our full year Adjusted EBITDA guidance range, despite today's macro uncertainty and limited order visibility into the second half. We are lifting our Free Cash Flow expectations for the full year, primarily thanks to tangible progress in working capital initiatives.

We now expect to generate slightly positive Free Cash Flow in 2026 at the midpoint of our guidance range, despite still operating through trough conditions. On slide four, we highlight our stepped-up execution and intense focus on the factors we can control. As ingrained in Orion's culture, we always emphasize safety first. Our year-to-date safety performance has been exceptional, with only one injury across all our people, sites, and contractors, substantially better than chemical industry norms. I would like to thank the whole Orion team, but particularly those who work at our production sites for your commitment to safety. These results reflect a high degree of operating discipline. Let's keep it up. We are also encouraged by our continued progress on plant reliability.

Supported by operational excellence programs, combined with prioritizing our maintenance CapEx on the most impactful projects, we are tracking towards our third consecutive year of improved plant reliability. In recent years, we have also worked to diversify our raw material supply options and production recipes, this has paid off in supply chain flexibility. Our working capital initiatives are yielding measurable benefits. Structurally lower inventories, enabled partly by progress in reliability and better forecast accuracy, along with improved payment terms, have been the most impactful levers. Meanwhile, cost initiatives, including headcount, procurement, and efficiency programs, are delivering, we remain on track for an annualized gross benefit of $20 million. On slide five, we discuss recent trends. Overall, our business continues to exhibit resilience despite oil price volatility and considerable global uncertainty. Underpinning demand strength during Q2 was customer preference for more de-risked local supply chains.

This favors our business model and footprint. A bit more color on the Specialty Segment's performance here. In our western regions, the recent top-line strength reflects broad end market participation beyond restocking activity. Demand for products serving coatings as well as wiring cable markets, such as infrastructure, were particularly healthy. Moreover, our customers continue to express how their demand for our products reflects genuine orders from their customers. Pricing actions, meanwhile, have been effective in helping to protect profit. For our Rubber Business, tire-related demand in key geographic regions has been generally stable, local tire production rates remain below historical norms. Despite that, the North American spot market was strong in the quarter and exceeded our capacity to accept incremental orders in some instances.

We believe our rubber segment is set up for recovery based on several underlying trends like trade issues, the value of local-for-local business, and some apparent tightness in local supply and demand. As import levels and channel inventories continue to normalize, locally made tire selling should improve, foreshadowing higher local tire production rates, a positive for Orion. On slide six, we highlight several favorable trade flow and regulatory considerations, which we expect will also contribute to improving fundamentals. Early last month, the European Commission finalized anti-dumping duties on tire exports from China, ranging from 24%-45% on all but one exporter. The EU's parallel anti-subsidy investigation into Chinese passenger car tires remains ongoing. Moreover, there is a precedent for the European Commission to impose anti-circumvention measures should evidence emerge that there are efforts to bypass import duties.

Given that Chinese imports into the EU dropped 75% from peak earlier this year when the anti-dumping duties were originally expected, this final action should reduce Chinese imports and support local EU tire production. Meanwhile, U.S. tire imports have been down versus prior year levels in each of the past four months. We continue to witness reshoring commitments, including at least three additional global players announcing their intent for significant capital investment in North America tire production facilities. We believe recently announced closures of old, higher-cost plants need to be considered against the context of tire manufacturers modernizing, expanding, and scaling their best production facilities. On balance, this is healthy for the industry. Meanwhile, we expect a variety of secular tire and technology trends will contribute to steady and improving carbon black.

These include the preference for larger tires, greater wear associated with EV adoption, the shift to all-season tires, and increasing standards around abrasion and durability in Europe. The confluence of these trends should translate into either higher carbon black content per unit or more frequent replacement cycles, or both.

One moment please. Where? Okay.