Q1 2024 Orion SA Earnings Call

Operator: Ladies and gentlemen, good morning and welcome to the Orion SA first quarter 2024 audience conference call. At this time, all participants are in a lesson only mode. A brief question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star and zero on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Wendy Wilson, Head of Investor Relations. Please go ahead.

Ladies and gentlemen, good morning, and welcome to the Orion S. A first quarter of 'twenty 'twenty four earnings conference call.

At this time all participants are in a listen only mode.

A brief question and answer session will follow the formal presentation.

If anyone should require operator assistance during the conference. Please press star I'm fetal on your telephone keypad.

As a reminder, this conference is being recorded.

It does not my pleasure to introduce your host Wendy Wilson head of Investor Relations. Please go ahead.

Wendy Wilson: Thank you, Ryan. Good morning, everyone, and welcome to Orion's conference call to discuss our first quarter 2024 financial results. I'm Wendy Wilson, head of investor relations. With me today are Corning Painter, our Chief Executive Officer, and Jeff Gleick, our Chief Financial Officer.

Wendy Wilson: Thank you Ryan.

Wendy Wilson: Everyone and welcome to Orion Conference call to discuss our first quarter 2024 financial results.

I'm Wendy Wilson head of Investor Relations with me today are Corning painter, our Chief Executive Officer, and Jeff Quake.

Our Chief Financial Officer.

Wendy Wilson: We issued our press release after the market closed yesterday, and we also posted a slide presentation to the investor relations portion of our website. We will be referencing this presentation during the call. Before we begin, I'd like to remind you that some of the comments made during 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 FEC, and our actual results may differ from those described during the call.

Wendy Wilson: We issued our press release after the market closed yesterday, and we also posted a slide presentation to the Investor Relations portion of our website, we will be referencing this presentation during the call.

Wendy Wilson: In addition, all forward-looking statements are made as of today, May 3, 2024. 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 table attached to our press release.

Wendy Wilson: Before we begin I'd like 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 SEC and our actual results may differ from those described during the call.

Wendy Wilson: In addition, all forward looking statements are made as of today may three 2024.

He is not obligated to update any forward looking statements based on our 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 table attached to our press release.

Wendy Wilson: I'll now turn the call over to Corning Painter.

Speaker Change: I'll now turn the call over according feature.

Corning F. Painter: Thank you, Wendy. Good morning, everyone, and thank you for joining us on our call today. We started 2024 on a strong footing with adjusted EBITDA of $85 million, our second best Q1, behind only last year's results. More importantly, we saw underlying improvement in the business. Our specialty volume grew 19% compared with last year. At the same time, we increased our gross profit per ton from $492 in Q4 to $659, a level more in line with normal margin levels. Robert Gross Profit Margins of $435 per ton were well above last year's average of $409 per ton. Prior to 2022, our rubber gross profit margins typically ran in the $200-$300 per ton range.

Speaker Change: Thank you Wendy good morning, everyone and thank you for joining our call today, we started 2024 on a strong footing with adjusted EBITDA of $85 million. Our second best Q1 behind only last year's results more importantly, we saw underlying improvement.

According Feature: In the business, our specialty volume grew 19% compared with last year at the same time, we increase increased our gross profit per ton for $492 in Q4 to $659 to a level more in line with normal margin levels.

According Feature: Robert gross profit margins of three $435 per ton were well above last year's average of 409 per ton.

According Feature: Prior to 2022, a rubber gross profit margins typically ran in the two to $300 per ton range. These results clearly show that our key markets continue to restructure and this is the new normal from which we can bill.

Corning F. Painter: These results clearly show that our key markets continue to restructure, and this is the new normal from which we can build. As a result of our progress in both markets, we continue to expect 2024 to be another year of growth leading to record EBITDA. In summary, we're on track to outperform expectations in specialty and to exceed per ton margins in rubber, despite a more challenging geographic mix in both markets. Digging deeper into rubber, we expect strong demand in Europe but weaker than expected demand in the Americas.

According Feature: As a result of our progress in both markets. We continue to expect 2024 to be another year of growth leading to record EBITDA.

In summary, we're on track to outperform expectations and specialty and to exceed per ton margins in rubber despite a more challenging geographic mix in both markets.

According Feature: Digging deeper into rubber, we expect strong demand in Europe, a weaker than expected demand in the Americas. We are confident that we can adapt to these changes with agility and remained committed to our guidance range of adjusted EBITDA at $340 million to $360 million and adjusted diluted EPS.

Corning F. Painter: We are confident that we can adapt to these changes with agility and remain committed to our guidance range of adjusted EBITDA at $340 to $360 million and adjusted diluted EPS of $2.05 to $2.20 per share, up 5 and 11 percent, respectively. In sustainability, we were recently notified that our EcoBidis rating has been raised from gold to platinum, the highest possible distinction. That means we are in the top 1% of companies assessed by EcoBidis, one of the world's largest providers of business sustainability rates. This ranking is quite prestigious, with a well-respected NGO validating our tremendous progress. A huge congratulations to the whole Orion team on this accomplishment.

According Feature: A $2 five to $2 20 per share up five and 11% respectively.

According Feature: In sustainability, we were recently notified that our eco Denise rating has been raised from gold to platinum the highest possible distinction that means we earned a place amongst the top 1% of companies assessed by <unk>, one of the world's largest providers of business sustainability ratings.

According Feature: This ranking is quite prestigious with a well respected NGL validating our tremendous progress a huge congratulations to the whole Orion team on this accomplishment. Thank you well done.

Corning F. Painter: Thank you, and well done, looking at our two business units and starting with rubber. Our customers are gaining confidence looking towards 2025. This, combined with the EU ban on Russian carbon black, which begins in less than two months, shipping challenges from Asia to Europe, the seeming end of the U.S. trucking recession, and the industry restructuring in our value chain, all make for a very promising 2025 price we see customers already gearing up for the negotiations, perhaps preferring to wrap things up before the market strengthens further. Some are essentially kicking off the negotiations now, while others are in the framing stage, defining parameters for the 2025 negotiations.

According Feature: Looking at our two business units and starting with rubber our customers are gaining confidence looking towards 2025.

According Feature: This combined with the EU ban on Russian carbon black, which begins in less than two months.

According Feature: Shipping challenges from Asia to Europe, the seeming end of the U S trucking recession and the industry restructuring in our value chain. All makes for a very promising 2025 pricing cycle, we see customers already gearing up for the negotiations, perhaps preferring to wrap things up before the Mar.

According Feature: <unk> strengthens further.

According Feature: So are essentially kicking off negotiations now while others are in the framing stage defining parameters for the 2025 negotiation.

Corning F. Painter: In terms of framing, for our part, we are open to starting early, but we want to avoid holding volume for a customer and then being left at the altar at the end. So, we will be stricter in enforcing time-bounded offers, utilizing volume rebates, and consider shifting production towards our specialty business to support the strengthening polymer market. In our specialty business, we will advance two significant products in Q1. First, last quarter, we shared that we achieved technical milestones related to the ongoing de-bottlenecking of our high-performance and unique surface-treated gas black braids for the coatings and ink market.

According Feature: In terms of framing for our part we are open to starting early but we wanted to avoid holding volume for our customer and then being left at the altar at the last moment. So we will be stricter in enforcing time bounded offers utilizing volume rebates and consider shifting production towards our specialty business.

According Feature: To support the strengthening polymer markets.

According Feature: In our specialty business, we advanced two significant products in Q1.

According Feature: First last quarter, we shared that we achieved technical milestones related to the ongoing debottlenecking of our high performance and unique surface treating gas black grades for the coatings and ink Mark.

Corning F. Painter: I am happy to report that technical marketing and customer uptake of the additional capacity is going well, exceeding expectations. Last month we also announced the introduction of Kappa-10, a new conductive carbon aimed at batteries with more of a cost-based value proposition. Here, I'm happy to say this product has been qualified by a leading player in the lithium-ion battery space and is being sold by Bugatti. Turning the slide.

According Feature: I am happy to report that technical marketing and customer uptake of the additional capacity is going well exceeding expectations.

Okay.

According Feature: Last month, we also announced the introduction of Tampa 10, a new conductive carbon aimed at batteries with more of a cost based value proposition here I'm happy to say this product has been qualified by a leading player in the lithium ion battery space and commercial sales of <unk>.

According Feature: Turning to slide four.

Corning F. Painter: With the EPA spending behind us, we will now focus our capital allocation on more financial and shareholder rewarding ways. I see capital allocation as management's top responsibility after sales. One priority for us is strategic and profitable growth. Here, we recently celebrated the groundbreaking of our new plant in LaPorte, TX, that is scheduled to be online in mid-2025. When completed, this will be the only facility in North America producing high-purity acetylene-based conductive additives to support the global shift to electrification.

According Feature: With the EPA spending behind US, we will now focus our capital allocation on more financial and shareholder rewarding ways I see capital allocation is management's top responsibility after safety.

According Feature: One priority for us is strategic and profitable growth here.

According Feature: Here, we recently celebrated the groundbreaking of our new plant in La Porte, Texas and is scheduled to be online in mid 2025.

According Feature: When completed this will be the only facility in North America, producing high purity settling days conductive additives to support the global shift to electrification.

Corning F. Painter: This site will produce conductive additives with about one-tenth the carbon footprint compared with alternative conductive carbon technology. As we've communicated in the past, this not only supports formulations for lithium-ion batteries but is also an essential material in the high-voltage cables that are needed to build out electric grids around the world. With that, I would ask Jeff to provide additional insights into our financial results.

According Feature: This site will produce conductive additives with about 110th the carbon footprint compared with alternative conductive carbon technology.

According Feature: As we've communicated in the past this not only supports formulations for lithium ion batteries, but it's also an essential material into high voltage cables that are needed to build out electric grids around the world.

According Feature: With that I would ask Jeff to provide additional insights into our financial results.

Jeff: Thank you Gordon.

Jeff: On slide five, are the consolidated results for the first quarter. Compared with Q1 last year, volume was up in both businesses, with specialty volumes increasing in all regions and rubber increasing in Europe and China. Gross profit and gross profit per ton were down. As we discussed last year, in Q1 2023, we had some timing and one-time benefits totaling $9 million. Those did not repeat.

On slide five are the consolidated results for the first quarter comp.

Jeff: Compared with Q1 last year volume was up in both businesses with specialty volumes, increasing in all regions and Robert increasing in Europe and China.

Jeff: Gross profit and gross profit per ton were down if you recall as we discussed last year in Q1 'twenty two 'twenty three we had some timing of onetime benefits totaling $9 million those did not repeat.

Jeff: We also saw an adverse impact this year from the regional rubber volume mix with less North American and more Chinese volume. On a sequential basis, all metrics were up, especially of note a significant increase in gross profit and gross profit per ton, which was up 28% to $492. On slide 6, we look at the Evita driver.

Jeff: We also saw an adverse impact this year from the regional rubber volume mix with less North American and more China volume.

Jeff: On a sequential basis, all metrics were up especially as note a significant increase in gross profit and gross profit per ton, which was up 28% to $492.

Jeff: Yes.

Jeff: On slide six we look at the EBITDA drivers.

Jeff: Stronger pricing and volume in rubber was primarily offset by poor regional mix. On the cost side, the $9 million impact in timing and one-time items from last year, as previously noted, higher labor costs and operating costs, as well as less benefits from cogeneration, on slide nine. Rubber volumes increased in Europe, where we are already seeing the benefit of the upcoming Russian carbon black band as well as in China, but this was mostly offset by lower demand in the Americas. However, compared with Q1 last year, we experienced lower gross profit per ton despite strong contractual price increases. This was due to the timing issues previously mentioned.

Jeff: Stronger pricing and volume in rubber was primarily offset by poor regional mix.

Jeff: On the cost side, the 9 million dollar impact in timing and one time items from last year as previously noted higher labor costs and operating costs as well as less benefit from Coke cogeneration.

Jeff: On slide nine.

Jeff: Rubber volumes increased in Europe, where we are already seeing the benefit of the upcoming Russian carbon black ban as well as in China, but this was mostly offset by lower demand in the Americas.

Jeff: Compared with Q1 last year, we experienced lower gross profit per ton despite strong contractual price increases.

Jeff: This was due to the timing issues previously mentioned.

Jeff: Poor regional mix, namely the weaker North American volume, higher fixed costs, and lower cogeneration prices. However, Q1 gross profit per ton of $435 was well above last year's average of $409. Reiterating what Corning said, we expect this higher level of gross profit per ton to continue across 2024. Slide 8 shows the impact in a waterfall chart of the rubber business. Pricing was up $5 million versus 2023 due to the continued structural market improvement. However, while volume was up 2.5%, the impact of the regional mix adversely impacted EBITDA by $6 million.

Jeff: Or a regional mix, namely the weaker North American volume.

Jeff: Higher fixed costs and lower cogeneration pricing.

Jeff: However, Q1 gross profit per ton of $435 was well above last year's average of $409.

Jeff: Reiterating what Corning said, we expect this higher level of gross profit per ton to continue across 2024.

Jeff: Slide eight shows the impacts in our waterfall chart of the rubber business.

Jeff: Pricing was up $5 million versus 2023 due to the continued structural market improvement.

Jeff: Volume was up two 5% the impact of the regional mix adversely impacted EBITDA by $6 million.

Jeff: Cost impacts also offset the improved prices. Just to be clear, in this chart, the $5.8 million cost impact is split roughly between cost increases and lower cogeneration prices. On slide nine is the financial table for specialty; volume increased across all regions and nearly all markets. Gross profit per ton decreased on a year-over-year basis primarily due to the prior year timing impacts previously mentioned and higher fixed costs. As expected, our gross profit per ton was significantly higher than Q4 2023, up 34% to $659.

Jeff: Cost impacts also offset the improved pricing.

Jeff: Just to be clear on this chart the $5 8 million dollar cost input packed is split roughly between cost increases and lower cogeneration pricing.

Jeff: On slide nine is the financial table for specialty.

Jeff: Volume increased across all regions and nearly all markets.

Gross profit per ton decreased on a year over year basis, primarily due to the prior year prior year timing impacts previously mentioned and higher fixed costs.

Jeff: As expected our gross profit per ton was significantly higher than Q4, 2023 up 34% to $659.

Jeff: While our trailing 12-month gross profit per ton has declined over the past four quarters, our Q1 level is above our trailing 12-month level, and we expect the curve will be turning back up as we move into the second half of this year. As we look forward, we also expect specialty volumes to continue stronger as market conditions improve, and Volume and Mix Moves Toward Higher Margin Products. The surface-treated gas black products, which Corning noted earlier, are an example of them.

Jeff: While our trailing 12 month gross profit per ton has declined over the past four quarters. Our Q1 level is above our trailing 12 month level and we expect the curve will be turning back up as we move into the second half of this year.

Jeff: As we look forward, we also expect specialty volumes to continue stronger as market conditions improve.

Jeff: And volume and mix moves towards higher margin products.

Jeff: The surface treated gas pipe gas black products, which according noted earlier are an example of this.

Jeff: Slide 10 shows a waterfall chart of specialty EBITDA, as discussed on the previous slide. However, increased specialty volumes were offset by the impact of favorable timing items from last year, as well as higher operating and labor costs.

Jeff: Slide 10 shows the waterfall chart.

Jeff: Specialty EBITDA as discussed on the previous slide.

Jeff: Increased specialty volumes were offset by the impact of favorable timing items from last year as well as higher operating and labor costs.

Jeff: Slide 11 shows cash flow for the quarter. We had an increase in working capital, but also a lower level of CapEx in Q1 compared with what we expect for the rest of 2024. Debt was down slightly, but since our trailing 12-month EBITDA was lower than our year-end 2023 EBITDA, our debt ratio increased to 2.44 times, still within our targeted 2.0 to 2.5 range. We are comfortable with our debt level as we made a concerted effort to lower it significantly in 2023.

Jeff: Slide 11 shows cash flow for the quarter we.

Jeff: We had an increase in working capital, but also lower level of Capex in Q1, compared with what we expect for the rest of 2024.

Jeff: That was down slightly but since our trailing 12 months EBITDA was lower than our year end 2023, EBITDA our debt ratio increased to 244 times still within our targeted two pointed out of two five range.

Jeff: We are comfortable with our debt level as we made a concerted effort to lower it significantly in 2023.

Jeff: Slide 12 shows our expected range for past generation and usage in 2024. For this year, the majority of our discretionary cast usage will go toward the port plant. On this table, we have not shown any change in working capital for 2024. This is one area of risk, as we saw in Q1, where working capital was up $26 million. We will monitor this closely as the year continues. With that, I will turn the call back over to Corning to discuss our 2024 guide.

Jeff: Slide 12 shows our expected range for cash generation and usage in 2024.

Jeff: For this year the majority of our discretionary cash usage will go towards the fourth plant.

Jeff: On this table, we have not shown any change in working capital for 2024. This is one area of risk as we saw in Q1, where working capital was up $26 million. We will monitor this closely as the year continues.

Speaker Change: With that I will turn the call back over according to discuss our 2020 for guidance.

Jeff: Thanks, Jeff.

Corning F. Painter: We're off to a good start, and I expect this to be another record year. Turning to slide 13, we're reaffirming our guidance based on current conditions. We project 5% EBITDA growth in 2024 and an 11% increase in EPS. This would be our fourth consecutive year of growth. Let me close with a few points for you.

Jeff: We're off to a good start and I expect this to be another record year turning to slide 13, we are reaffirming our guidance based on current conditions, We project, 5% EBITDA growth in 2024, and 11% increase in EPS. This would be our fourth year of growth.

Corning F. Painter: First, the industry restructuring, which has been underway for years, will continue. Tire Factories, New tire factories continue to be announced in North America and in Europe. The EU ban on Russian Carbon Black starts in 58 days.

Let me close with a few points for you first the industry restructure which has been underway for years will continue.

Jeff: Tire factories, new tire factories continue to be announced in North America and in Europe. The EU ban on Russian carbon black starts and 58 days the risks of a far flung supply chain are obvious the supply demand balance continues to move in our direction and our strengthening polymers.

Corning F. Painter: The risks of a farm phone supply chain are: The supply and demand balance continues to move in our direction, and a strengthening polymers market also tightens the rubber carbon black supply and demand. Second, specialty demand is. Third, our Laporte facility is on track for mid-next year, providing additional opportunities for expanding specialty markets, and forth. We take capital deployment seriously. We are committed to increasing free cash flow, maintaining a strong balance sheet, and deploying your capital wisely, providing increased returns through investments like Laporte, buying back shares, or by reducing our leverage. And Ryan, with that, please open up the lines for questions.

Jeff: Market also tightens, the rubber carbon black supply and demand for <unk>.

Jeff: Second specialty demand is recovering.

Third our Laporte facility is on track for mid next year, providing additional opportunities for expanding specialty margins and fourth.

Jeff: We take capital deployment serious we are committed to increasing free cash flow, maintaining a strong balance sheet and deploying your capital wise.

Jeff: <unk> increased returns through investments like la Porte buying back shares or by reducing our leverage.

Jeff: And Ryan with that please open up the lines for questions.

Ryan: Thank you.

Operator: Ladies and gentlemen, we will now be conducting a question and answer session. If you would like to ask a question, please press star and 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star and 2 if you'd like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the start button. Ladies and gentlemen, we will wait for a moment while we poll you for questions. Our first question is from the line of Josh Spector with UBS. Please go ahead.

Ryan: Ladies and gentlemen, we will now be conducting a question and answer session.

Ryan: If you would like to ask a question. Please press star and one on your telephone keypad.

Ryan: A confirmation tone will indicate your line isn't the question queue.

You May press star two if you'd like to remove your question from the queue.

Ryan: All participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys.

Speaker Change: Ladies and gentlemen, we will wait for a moment might be poll for questions.

Speaker Change: Yeah.

Speaker Change: Our first question is from the line of Josh Spector with UBS. Please go ahead.

Speaker Change: Okay.

Joshua David Spector: Yeah, hi, good morning, everyone. Corning, I was wondering if you could talk a bit about the volume trends that you're seeing in the markets today and kind of some of your forward expectations, because I think your comments seem pretty optimistic or maybe more upbeat about where demand is at. But it's pretty clear that your guidance assumption assumes no improvement. So how have things changed, and how does that compare versus what's baked into your guidance? Thanks.

Joshua David Spector: Yeah, Hi, good morning, everyone.

Joshua David Spector: Corey I was wonder if you could talk a bit about the volume trends that you're seeing in the markets today and kind of your some of your forward expectations, because I think in your comments seem pretty optimistic or maybe more upbeat.

Joshua David Spector: Where demand is that but it's pretty clear that terrorists guidance assumption assumes no improvement so how have things changed and how does that compare versus what's baked into your guidance.

Corning F. Painter: Sure. But we have never said that we saw for this year, like a hockey stick necessary to achieve our guidance, nor did we really think there was the confidence in the marketplace to do that. That said, in Q1, there were positive developments in it. I'd say in the specialty area, it's really quite broad.

Corey: Sure. So we have never said that we saw for this year like a hockey stick necessary to achieve our guidance nor did we really think there is the confidence in the marketplace to do that that said in Q1. There is positive developments in it I'd say in the specialty area, it's really quite broad.

Corey: Across the markets. So for example in some of the higher margin areas like coatings distributors, who are often serving coatings margins. Our customers. Those are very high but so are things like thin film and so forth. So you can see that balance and how our GP per ton has developed in specialty.

Corning F. Painter: [inaudible] Broadly speaking, we think that it's going to be continuing on this path. I don't see customers being eager to really stock up and restock in a big way, but I do think the fear of inventory and that sort of thing is down. On the tire space, you see, for example, in the North American market, increased purchasing of tires, and that's in the mid-teens, but you see tire production only up, maybe like 4 percent.

Corey: Broadly speaking, we think that it's going to be continuing on this path I don't see customers being eager to really stock up and restock in a big way, but I do think the fear of inventory and that sort of thing is down a bit.

The tire space you see for example in the North American market increased purchase of tires and that's in the mid teens, but you see tire production only up maybe like 4%. So there is still suffering from imports were still seeing a trucking volumes, while maybe now bottoming they haven't really come back strong.

Corning F. Painter: So, they're still suffering from imports. We're still seeing trucking volumes, well, maybe now bottoming out, you know; they haven't really come back stronger. So, you know, over the course of the year, it's possible that trend has stabilized, and we'll have to see the rate at which it improves from here. We do need a little bit of improvement, right, from an $85 million run rate to hit our guidance. So, you know, there's some growth expected in our number.

Corey: So over the course of the year, it's possible that trend I think has stabilized and we will have to see the rate at which it improves from here we.

We do need a little bit of improvement right from an $85 million run rate to hit our guidance. So there is some growth expected in our numbers.

Corning F. Painter: Yeah, thanks for that. And I guess maybe on that last point, I guess trying to think a little bit more near term here on second quarter, you had some pretty easy volume comps in specialty and rubber. And I mean, there was some noise in the first quarter from CoGen credits last year. But I guess the simple way to ask this is, do you expect EBITDA to be up year on year in 2Q with the higher volumes and maybe improved profitability in rubber? Or are there other offsets we should be considering? Thanks. So, I think...

Speaker Change: Yeah, Thanks for that and I guess, maybe on that last point.

Speaker Change: Let's try to pick a little bit more near term here on the second quarter.

Speaker Change: You had some pretty easy volume comps in specialty and rubber and I mean, there was some noise in the first quarter from co Jen credits last year.

Speaker Change: But I guess the simple way to ask this is do you expect EBITDA up year on year in Q O Q with the higher volumes with may be improving profitability in rubber or are there other offsets we should be considering.

Joshua David Spector: A little bit. I guess I'll try another time just in the second quarter.

Corning F. Painter: So, on a clean run rate basis, I think that we're in a good position for next year with improved margins and improved specialty markets. Does that help, Josh?

Speaker Change: So I think on a.

On a clean run rate basis, I think that we're in a good position for next year with improved margins.

Speaker Change: And improving specialty market.

So does that help Josh.

Speaker Change: Yeah.

Yes.

Corning F. Painter: I mean, I think volumes could be up something like 10%. I assume that would lift earnings year on year. What would be wrong with that thinking?

A little bit I guess tied.

Speaker Change: Tried to the time at second quarter, I mean, I think volumes could be up something like 10% I assume that would lift earnings year on year, what would be wrong with that thinking.

Corning F. Painter: Just in terms of last year, where, and so I'm doing this without having looked precisely at that for you, but I think you have to think about what the power rates were last year and any other sort of timing impacts that could flow in and out of our P&L. So, for example, if a particular input cost moves sharply quickly, then that's the kind of thing that can have a lag in our pricing model.

Speaker Change: And just in terms of last year, where.

Speaker Change: So I'm doing this.

Speaker Change: Without having what's precisely at that for you, but I think we'd have to think about what the power rates were last year and any other sort of timing impacts that can flow in and out of.

Speaker Change: Our P&L. So for example, if a particular input cost me sharply quickly and that's the kind of thing that can have a lag in our pricing models.

Speaker Change: Okay.

Corning F. Painter: I mean, in general. I mean, Josh, I'm not trying to be downbeat. I think that we'll be looking at a stronger quarter in Q2. I think that's implied in our guidance without giving out specific numbers.

Speaker Change: Okay.

Speaker Change: In general I mean, so Josh I'm not trying to be downbeat, I think that we'll be looking at a stronger quarter in Q2, I think that's implied in our guidance without giving out specific numbers.

Jeff: And Josh, just one additional thought, if you think about the midpoint of our guidance relative to the last three quarters of last year, we're clearly, whether it's in one quarter but certainly over the course of three quarters, we're going to have to have significantly higher EBITDA in the last three quarters to hit the midpoint of our guidance. So we would have to be at $265 million last year.

Speaker Change: And Josh This is Jeff just one additional thought if you think about the.

Jeff: The midpoint of our guidance relative to the last three quarters of last year were clearly.

Jeff: Whether it's in one quarter, but certainly over the course of three quarters, we've got to have significantly higher EBITDA in the last three quarters to hit the midpoint of our guidance, we would have to be at $265 million and last year in the last three quarters. We were at roughly 230 to 31. So it is a pretty significant ramp over the three quarters, whether you see some of that in the second.

Jeff: In the last three quarters, we were at roughly 230 and 231, so there's been a pretty significant ramp up over the last three quarters. Whether you see some of that in the second quarter or it's more back-end loaded, we'll have to see. We did have, if you look at last year, we did have a bit of a stronger second quarter, and then the third and fourth quarter weren't nearly as strong. So you would perhaps see more growth in the third and fourth quarters year over year.

Jeff: Or it's more back end loaded we will have to see we did have if you look at last year, we did have a bit of a stronger second quarter than the third and fourth quarter weren't nearly as strong. So you perhaps will see more growth in the third and fourth quarter year over year.

Joshua David Spector: Yeah, thanks. I'll leave it there. Thank you, guys.

Speaker Change: Yeah. Thanks, I'll leave it there thank you guys.

Speaker Change: Thanks, Josh.

Operator: Thank you. Our next question is from the line of John Roberts with Mizuho Securities. Please go ahead.

Thank you.

Speaker Change: Our next question is from the line of John Roberts with Mizuho Securities. Please go ahead.

John Ezekiel E. Roberts: Thank you. It's been a while since we've had kind of normal seasonality, I guess. Would you characterize the Q over Q, the March quarter versus the December quarter, 10% volume growth overall, 8% rubber, 15% specialty, normal seasonal pickup, or better or worse than normal seasonality?

John Ezekiel E. Roberts: Thank you.

John Ezekiel E. Roberts: <unk>.

John Ezekiel E. Roberts: It's been awhile since we've had kind of normal seasonality I guess would.

John Ezekiel E. Roberts: Would you characterize the Q over Q, the March quarter versus the December quarter, 10% volume growth overall, 8% in rubber 15% specialty.

John Ezekiel E. Roberts: Normal seasonal pick up or better or worse than normal seasonal.

Corning F. Painter: I would describe the specialty as a little bit better than normal. I looked back over the time. There were a few times when we had a bigger, let's say, EBITDA step change, but that's when we saw, let's say, power prices really move sharply in Europe or a special circumstance like that. So I put the specialty at a little bit better than your normal seasonality.

John Ezekiel E. Roberts: I would describe the specialty as a little bit better than normal I looked back over the time there were a few times and we had a bigger let's say EBITDA step change, but that's when we saw let's say power prices really moved sharply in Europe or a special circumstance like that so I'd put the specialty.

John Ezekiel E. Roberts: And a little bit better than your normal seasonality.

Corning F. Painter: And then industrial rubber has a fair amount of automotive OEM exposure, and it seems like, at least in developed markets, North America, Europe, the auto OEM market has slowed here. Are you seeing that in your industrial rubber products?

John Ezekiel E. Roberts: And then industrial rubber has a fair amount of automotive OEM exposure and it seems like in at least in the developed markets North America Europe Auto OEM has slowed here.

John Ezekiel E. Roberts: Are you seeing that in your industrial rubber products.

Corning F. Painter: Well, as I said, we see North America a bit slower, and some of that's probably in the OEM space. Some of that, I think, is also just the impact of import tires on the replacement market. And it's difficult for us to tease out exactly where that is. But I'd say North America a little bit less. In Europe, I'm not saying the tire to market is dramatically better than North America. It's just I think the Russian band has a really tight sound.

Speaker Change: Well as I said, we see North America, a bit slower and some of that's probably in the OEM space. Some of that I think sales and just the impact of import tires on the replacement market and it's difficult for us to tease out exactly where that is but I would say North America, a little bit less in Europe.

Speaker Change: Nothing that tire to market is like that dramatically better than North America. It's just I think the Russian ban has really tightened things up.

Corning F. Painter: And then lastly, I know China's not that big, but you've got new capacity there, and you sounded pretty upbeat about China. It's confusing, I think, to a lot of companies what's actually going on. What's your confidence in the sustainability of strength in China right now? So I think that's your answer.

Speaker Change: Okay, and then lastly, I know China is not that big but you've got new capacity, there and you sounded pretty upbeat about China. It's confusing I think to a lot of companies, what's actually going on what's your what's your read and the sustainability of the strength in China right now.

Speaker Change: So I think so.

Corning F. Painter: sectors of the Chinese economy that are really set on exports, you can look at, well, you know, is there a recovery in European consumer demand, North American consumer demand, that kind of thing. In general, like, maybe it's like the story of the Purchaser Matters Index, right? It's slightly above 50, but not by much. So I think it's a slightly improved situation and sentiment from when I was there last in November, but I don't think I wouldn't read into that that it's extremely bullish or that there isn't still some negative sentiment in that market.

Centers of the Chinese economy that are really set on exports you can look at well you know there's been a recovery in European consumer demand in North American consumer demand that kind of thing in general like maybe it's like the story of the purchaser matters index right, it's like slightly above 50, but not much. So I think it is.

Speaker Change: At slightly improved situation and sentiment from where like when I was there last in November but I don't think.

Speaker Change: I don't I wouldn't read into that that it's extremely bullish more that there isn't.

Speaker Change: Still some negative sentiment in that market.

Speaker Change: Thank you.

Speaker Change: Thank you.

Operator: Our next question is from the line of John Tanwanteng with CJS Securities. Please go ahead.

Speaker Change: Our next question is from the line of Jon <unk> with CJS Securities. Please go ahead.

Jonathan E. Tanwanteng: Hi, good morning. Thank you for taking my questions and a nice quarter. I was wondering if you could talk a little bit more about pricing and the remaining capacity you have in 24 ahead of this Russian import ban. Exactly how much upside are you seeing there or movement, I guess, are you seeing there, first in 24, and two, is it impacting 25 pricing negotiations if those have started yet?

Jon: Hi, Good morning, Thank you for taking my questions and nice quarter. I was wondering if you could talk a little bit more about pricing and the remaining capacity you have in 'twenty. Four ahead of this Russian import ban exactly how much upside or are you seeing there were movement I guess what are you seeing there first in 'twenty four and two is it is impacting twenty-five pricing negotiation.

Jon: If it does it started yet.

Corning F. Painter: Sure. So, in Europe specifically, a lot of the, let's say, premier tire brands, they had already locked in their supply, and they had locked in their supply without Russian carbon black. So, I'd say it's more a play in the second area. And I see opportunities to pick up some additional volume there. Competition is really with Indian supply in that space, so it's a positive environment. It's not like it's unchecked positivity, I would say, and I definitely think all this sets up for a very strong negotiation for next year.

Speaker Change: Sure So in Europe, specifically a lot of the.

Speaker Change: Let's say premier tire brands, they had already locked in their supply and they've locked in their supply without Russian carbon black. So I'd say, it's more of a play in the second areas. So I see we do see opportunities to pick up some additional volume there competition Israeli with Indian supply in that space. So it's a positive environment.

Speaker Change: It's not like it's unchecked deposits ended the I would say and I think definitely all of this sets up for a very strong negotiation for next year.

Speaker Change: Okay.

Corning F. Painter: Have those discussions started yet for next year? Oh, yes, I tried to make that clear in it. So some people are in the framing, some people want to talk numbers, so that's going on already. And also, congratulations on the platinum rating. I was wondering if that impacts your pricing ability.

Speaker Change: <unk> started yet for next year is that is that Oh, yes, I tried to make that clear and so some people are in the framing some people want to talk numbers. So that's a if that's all right.

And also congratulations on the on the platinum rating I was wondering if that impacts your pricing ability or is it just more nominal at this point.

Corning F. Painter: I think that, you know, many of our customers are really concerned about sustainability, and that is their preferred metric, for sure. So, I think it really is just another validation that we're, you know, a leader in this industry, that we're a supplier you can count on, you can count on for the long haul. And that sense of reliability and long-term commitment surely is worth something in this. And I think people have, you know, learned the risk of not locking up serious suppliers. So, I think it's a net positive for us.

Speaker Change: I think that you know for many of our customers are really concerned about sustainability and that is their preferred metrics for sure. So I think it really is just another validation that we're a leader in this industry that where our school supplier you can count on you can count on some long haul and that sense of millennium.

Speaker Change: Ability and long term commitment surely is worth something in this.

Speaker Change: People have.

Speaker Change: <unk> learned the risk.

Speaker Change: Not playing the non locking up serious suppliers. So I think it's a net positive for us.

Jonathan E. Tanwanteng: Okay, got it. What areas do you still see weakness in, and kind of what are the prospects for improvement in those areas as you go through them?

Speaker Change: Got it.

Speaker Change: What areas do you still see weakness in and kind of what are the prospects for improvement in those areas as you go through the year.

Corning F. Painter: You know, I would say North American tires is still a weaker area. Tire purchases are up much more than manufacturing. So let me be clear. What I mean when I say North American tires is, to a certain degree, European tire manufacturing.

Speaker Change: Yeah, well I would say you know north American tires is still a weaker areas tire purchases are up much more than manufacturing. So let me clear on I mean, when I say North American tires, I mean, North America tire manufacturing to certain of our European tire manufacturing and this man relies on the brands with.

Corning F. Painter: And this then relies on brands with, really, a better cost of ownership value proposition to customers start earning back people's business as people adjust to the pricing changes that have happened in the market and, you know, incomes are up, and people sort of accept the new normal. I think that's a big opportunity for the marketplace. I mean, in general, the... You know, in the specialty area, almost every market is up, some more than others.

Speaker Change: Really a better cost of ownership.

Speaker Change: Our value proposition to customers.

Speaker Change: Start, earning back peoples business as people adjust to the pricing changes that have happened in the market.

Speaker Change: Incomes are up and people sort of accept the new normal I think that said a big opportunity for the marketplace.

Speaker Change: In general the.

Speaker Change: In the specialty area almost every market is up some more than others. So for example in North America of offshore wind and grid to Plano and connecting up far flung.

Corning F. Painter: So, for example, in North America, if offshore wind and grid 2.0 and connecting up far-flung, you know, wind on land, wind farms, as that progresses, that's the kind of thing that would increase demand in that particular market, that sort of thing. Does that help, John? It does, thank you.

Speaker Change: On land wind farms.

Speaker Change: <unk> progresses.

Speaker Change: Thing that with increased demand in that particular market.

Speaker Change: That sort of thing does that help John yes. It does thank you and then finally, just an update on capital allocation. You mentioned is important I'm, just wondering where is it most likely to deploy excess cash in the next six to 12 months.

Corning F. Painter: And then finally, an update on capital allocation. You mentioned it was important. I'm just wondering where. All right, so when we think about capital allocation, we think number one, just in terms of a framework, about, hey, what's our cash flow? What are the other uses of cash? We also think about our share price relative to different ways of valuing companies and thinking about what the share price should be. Of course, the balance sheet, and not just the balance sheet today, but, you know, what are the exposures to that working capital, as Jeff mentioned, with the oil prices, that sort of thing.

Speaker Change: Alright, so when we think about capital allocation, we think.

Number one just in terms of a framework about hey, what's our cash flow what are the other uses for cash. We also think about our share price relative to different ways of valuing and thinking about what the share price should be of course, the balance the balance sheet and not just the balance sheet today, but what are the exposures to that working capital is.

Speaker Change: Jeff mentioned with oil prices that sort of thing.

Corning F. Painter: And significant milestones, such as the LulaPort startup. So, we were not in the market in the first quarter, and I think if things play out relatively stably for this year and continue the trend, we're likely not to be in the market. We do definitely see the share prices significantly undervalued and a really good opportunity. With the EPA spending, we don't have, you know, that drawback on us, and we do have positive cash.

Speaker Change: And significant milestones such as well of course startup.

So we were not in the market in the first quarter and I think if things play out relatively stably for this year and continue the trend we're likely not to be in the market.

Speaker Change: We do definitely see the share price is significantly undervalued and a really good opportunity.

Speaker Change: With the EPA spending we don't have.

Speaker Change: That draw on us and we do have positive cash flow, but it's not of the magnitude that we'd really like we did see our balance sheet. The ratio move up to 244, and Thats really an artifact of EBITDA TTM effects, but nonetheless that went a little bit higher so in the balance of that I think we're unlikely to.

Corning F. Painter: But it's not of the magnitude that we'd really like. We did see our balance sheet, the ratio move up to 2.44. That's really an artifact of EBITDA TTM effects. But nonetheless, that went a little bit higher. So on the balance of that, I think we're unlikely to be in the market this year. But things can change as the year plays out.

Speaker Change: In the market this year, but you know things can change as the year plays out.

Speaker Change: Okay.

Speaker Change: Got it okay. Thank you.

Speaker Change: Thank you.

Operator: Ladies and gentlemen, a reminder, if you wish to ask a question, please press star and 1. Our next question is from the line of Josh Spector with UBS. Please go ahead.

Speaker Change: Ladies and gentlemen, a reminder, if you wish to ask a question. Please press star and one.

Speaker Change: Our next question is from the line of Josh Spector with UBS. Please go ahead.

Sure.

Joshua David Spector: Neil again.

Joshua David Spector: I've got to try again. So I'm definitely reading here that you don't want to be specific on 2Q. But I do want to walk through some of the moving parts, I guess, because obviously, the first quarter had the cogen impacts that you specifically called out. Europe gas was higher last year, but it was flat through the quarter. Oil was lower last year. It's higher now. So I'm looking at and trying to think about the energy side of things.

Joshua David Spector: I Gotta try again.

Joshua David Spector: So I'm definitely reading here that you don't want to be specific on QQ, but I do want to walk through some of the moving parts I guess cause.

Joshua David Spector: Obviously first quarter had the co gen impacts that you specifically called out.

Joshua David Spector: Europe gas was higher last year, but it was flat through the quarter oil was lower last year, it's higher now.

Joshua David Spector: So I'm looking at trying to think about the energy side of things oil is probably a little bit of a positive that gas I mean as it relates to specialty is probably a little bit of a negative.

Joshua David Spector: Oil is probably a little bit of a positive. That gas, I mean, as it relates to specialty, is probably a little bit of a negative. I guess, is there anything we should be looking at outside of volume growth that should be a driver there? And I guess I'll ask again, specifically, if 2Q EBITDA could be higher year over year. And I'm focusing on that there because, obviously, the second half of last year, the comps are easy.

Speaker Change: I guess is there anything we should be looking at outside of volume growth that should be drivers there and I guess I'll ask again, specifically of QQ EBITDA higher year over year, and I'm focusing that there because obviously the second half of last year.

Speaker Change: The comps are easy.

Joshua David Spector: I mean, I would hope you're going to be higher year over year. 2Q is probably more informative about the run rate for us, which is why my focus is there. So any additional color would be helpful.

Speaker Change: Hope you're going to be higher year over year can you just probably more informative up the run rate for us which is one that focuses there so any additional color would be helpful.

Jeff: Hey Josh, this is Jeff. Let me give you a little more clarity on Q2 last year just to get us all in the same starting place. So even last year in Q2, it was $87 million. Included in that was about $4 million of one-time items, which I think we discussed in the call last year, as well as some co-gen benefit because of some forward sales of power that we had set up in late 22 that benefited all 23, that across the year is probably about $10 million.

Speaker Change: Okay.

Speaker Change: Josh This is Jeff let me give you a little more clarity on Q2 last year just to get US all on the same starting place. So even though last year. In Q2 was $87 million included in that was about $4 million of one time items, which I think we've discussed in the call last year as well as we we had.

Speaker Change: Some co gen benefits because of some forward.

Jeff: Sales of power that we have set up in late 'twenty two that benefited all of 'twenty three that across the year is probably about $10 million. So you can kind of think about that is two and a half million dollars a quarter. So between that two and a half and for the operating result last year would have been right around $80 million I just wanted to.

Jeff: So you can kind of think about that as two and a half million dollars a quarter. So between that two and a half and four, the operating result last year would have been right around $80 million. I just want to get us kind of balanced in the same place.

Get us kind of balance in the same place there.

Jeff: So do we expect to exceed that number? Yes, we do. But do we necessarily think we're going to blow past 87? Well, we certainly aspire to. But you know, there's that element, there's the forward power sale that we've talked about before. But just to remind us that's in the last

Jeff: So do not expect to exceed that number yes, we do do we necessarily think worried is going to blow past 87, well, we certainly aspire to.

Jeff: Theres that element there is the forward power sale that we've talked about before but just to remind us that's in last year's numbers.

Joshua David Spector: Yeah, so I guess, I mean, if I look at the earnings per ton and assume that, you know, that some of that's baked in, we think specialty normalizes year on year, maybe slightly better than the first quarter. Rubber, you have some benefit. I guess the other piece of that comes down to volumes. I think Don asked about it a little bit before, but I mean, year on year, there's an easy comp that should be up 10-ish percent. Is that a fair way to think about it?

Jeff: Yeah. So I guess I mean, if I look at the earnings per ton and assume that that's something that's baked in we think specialty normalizes year on year.

Jeff: Maybe slightly better than the first quarter rubber you had some benefit.

Jeff: The other piece of that comes down to volumes I think John asked about it before a little bit but year on year, there's that easy comp that should be up 10 ish percent is that a fair way to think about it.

Corning F. Painter: Well, I would say if we take the pieces, I would expect specialty GP per ton to continue to improve from where we are today. I would expect rubber GP per ton to more or less hold where we are, just because the majority of the contracts are locked in at this point. And so, yeah, volume growth from there as the year progresses on a modest level is sort of what takes us to higher levels. Jeff, anything you want to add to this? No, I think you...

Jeff: Well I would say if we take the pieces I would expect specialty GP per ton to continue to improve from where we are today I would expect the rubber GB.

Jeff: <unk> per ton to more or less hold where we are just because the majority of the contracts are locked in at this point and so yeah volume growth from there.

Jeff: For the year progresses at a modest level is sort of what it takes us into higher levels.

Jeff: Jeff anything you want to add no I think I think that well you know we will continue to see weakness in volume in the Americas, We believe but again that's built into the GP per ton numbers, we gave.

Jeff: I think you hit that well. We will continue to see weakness in volume in the Americas, we believe, but again, that's built into the GP per ton number that we gave.

Joshua David Spector: I appreciate that. I do want to ask one question beyond focusing on 2Q.

Speaker Change: I appreciate that.

Ask one beyond focusing on two Q.

Joshua David Spector: On the Laporte project, I mean, it's good to see the groundbreaking. I guess when I look at that, startup within a year of groundbreaking seems pretty quick. So, I guess there are two questions with that: one, the level of comfort or maybe buffer baked into that timeline for us to be actually, you know, running and commissioning, call it 12 months or less from now. And then, two, how do you see that plant ramping up, and what does that mean for profitability over 25, 26? Do we have muted profitability because there are startup costs and other things in the first 25 years, or do we actually start to see that in the second half?

Jeff: On the Laporte project I mean, it's good to see the groundbreaking I guess when I look at that startup within a year of groundbreaking seems great.

Jeff: So I guess, there's two questions with that it is one the level of comfort or maybe buffer baked into that timeline for us to be actually.

Jeff: And commissioning call it 12 months or less from now and then.

Jeff: Got too high.

Jeff: How do you see that plant ramping up and what does that mean for profitability over 'twenty five 'twenty six do we have muted profitability because their startup costs and other things in 'twenty five or do we actually start to see that in the second half.

Corning F. Painter: Josh, excellent question. I was wondering if we're going to get that about, you know, groundbreaking and then commissioning just a little bit more than a year later. The majority of this plant is being built offshore in super modules. It's, I think, a leading manufacturing technique. It de-risks a lot of the cost inflation that you see on the U.S. Gulf Coast and labor availability. We are right on the Houston shipping canal, so this site is a great opportunity to use those techniques, and that's really where the bulk of the plant's going to come in, and that's all on schedule, so I think we feel really very good about that.

Jeff: Josh excellent question I was wondering if we're going to get that about <unk>.

Jeff: Groundbreaking and commissioning just a little bit more than a year later the majority of this plant is being built offshore and Super modules. It's I think a leading manufacturing techniques and derisked a lot of the cost inflation that you see in the U S Gulf Coast and labor availability.

Jeff: We are right on the Houston shipping Canal. So this site is a great opportunity to use those techniques and that's really where the how the bulk of the plant is going to come in and that's all on schedule. So I think we feel really very good for that those modules will be coming in late this year.

Corning F. Painter: Those modules will be coming in late this year, so we do expect to be in startup, let's say, mid-next year, that kind of thing. But I do not expect any financial contribution in 2025 from LaPorte at this point. I think the qualification process is going to take some time, and the higher the differentiated product, the higher the margin you're trying to achieve, the longer that it takes, and I would say, you know, well into 2026, I really wouldn't expect a big contribution.

Joshua David Spector: Got it. Thank you very much.

Jeff: So we do expect to be in start up lets say mid next year that kind of thing now I do not expect any financial contribution in 2025 from the board at this point I think the qualification process is going to take some time.

Jeff: The higher the differentiated product the higher the margin youre striking to achieve the longer it takes.

Jeff: And I would say well into 2026, I really wouldn't expect a big contribution.

Jeff: Yes.

Speaker Change: Got it thank you very much.

Jeff: Yeah.

Speaker Change: Thank you.

Speaker Change: Ladies and gentlemen, there are no further questions I now hand, the conference over to Corning painter for his closing comments.

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

Corning F. Painter: Well, thank you all again for your time today. As an investor myself, I'd just like to thank you all for the trust that you've put in us. And thank you again for listening and for the thoughtful questions that we received as well. Please reach out if you have any further questions. We'd really be happy to hear from any of our investors. Thank you all and have a good rest of your day.

Corning F. Painter: Well. Thank you all again for your time today.

Corning F. Painter: As an investor myself I'd just like to thank you all for the trust that you've put into us and thank you for again for listening and for the thoughtful questions that we received as well. Please reach out if you any further questions, we'd really be happy to hear from for many of our investors. Thank you all and have a good rest of your day.

Operator: Thank you. The conference call of Orion SA has now concluded. Thank you for your participation. You may now disconnect your line.

Speaker Change: Thank you.

Speaker Change: Conference call for Orion assay has now concluded. Thank you for your participation you may now disconnect your lines.

Speaker Change: Yeah.

Speaker Change: Okay.

Speaker Change: Okay.

Speaker Change: [music].