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DATE

Thursday, May 7, 2026 at 8:30 a.m. ET

CALL PARTICIPANTS

  • Chief Executive Officer — Corning Painter
  • Chief Financial Officer — Jonathan Puckett

TAKEAWAYS

  • Adjusted EBITDA -- Orion Engineered Carbons (OEC 5.89%) reported adjusted EBITDA of $46 million, reflecting a decrease attributable to 2026 Rubber segment contract pricing but exceeding internal expectations due to March demand gains.
  • Segment EBITDA -- Specialty segment adjusted EBITDA increased 7% to $27 million, driven by 3% higher volumes and favorable mix, while Rubber segment EBITDA declined 53% to $19 million mainly from pricing resets.
  • Volumes -- Company-wide shipment volumes grew 2%, led by gains in Asia and modest EMEA growth in Rubber, while Americas Rubber volumes fell due to weather-impacted tire channel sell-through.
  • Free cash flow -- Free cash outflow totaled $48 million, including $54 million in working capital use tied to seasonality and oil price volatility, and capital expenditures of $36 million aligned with expectations.
  • Net debt & leverage -- Net debt was $965 million, resulting in a net leverage ratio of 4.2x, remaining within credit agreement constraints; quarter-end liquidity was reported near $200 million.
  • Full year guidance raised -- Updated 2026 adjusted EBITDA guidance was increased by $10 million to a range of $170 million-$210 million, reflecting persistent demand momentum into Q2 and expectation of a 50-50 first/second half earnings split as European emission credit timing shifts to Q3.
  • Full year free cash outlook -- The company now expects a full year free cash outflow of $25 million-$50 million, projecting Q2 cash flow similar to Q1, with improvements in Q3 and a positive Q4, based on scenarios for oil price trends.
  • Operational efficiency -- Additional cost reduction initiatives and procurement savings are underway, supporting a $20 million gross savings target and CapEx plan of $90 million for 2026, a reduction of $70 million compared to 2025.
  • Working capital initiative -- Management expects to unlock at least $30 million from working capital over the course of 2026 through inventory, supplier payment, and receivable optimizations.
  • Specialty commercial focus -- Over half of Specialty revenue is not protected by contract pass-through terms, requiring continued price increases and surcharges to maintain margins in an inflationary feedstock and energy environment.
  • Macro impacts -- Import data shows February U.S. tire imports from Thailand fell 19% year over year, while pre-conflict overall U.S. tire imports declined 9%, which management links to tightening global trade flows and tariffs.
  • Pending regulation -- The European Commission proposed antidumping duties of 30%-52% on Chinese tire imports effective June 18, which could alter competitive dynamics in Orion's key markets.
  • Trade and demand outlook -- USMCA reset on July 1, and positive Eurozone and North American PMI readings over several months are highlighted as potential catalysts for further demand gains in the second half of 2026 and into 2027.
  • Feedstock and margin management -- The company’s contractual pass-through structures largely protected margins from oil volatility, except in situations favoring direct price actions, as in segments of Specialty and spot markets in China.
  • Plant operations -- The Huaibei facility in China is improving manufacturing output and profitability following recent technical resolutions, contributing to Specialty segment momentum.

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RISKS

  • Jonathan Puckett said, "the pricing is set in an annual negotiation process. So we're in for this year's profitability in pricing. We were struck last year by like a perfect storm of many different factors, which I think really weakened the pricing environment," highlighting sustained earnings pressure in the Rubber segment for 2026.
  • Jonathan Puckett noted, "I think South Korea is just indicative of, let's say, a lot of Asia ex China, let's say, in that people who are reliant on petroleum and petroleum derivatives from the Middle East are in just a much more difficult situation. Even if this thing opens up tomorrow, I think it's very clear, it's going to take quite a while to get back on its feet," signaling limited regional recovery and weaker demand environments.
  • Jonathan Puckett indicated, "our visibility beyond the second quarter is limited. The course and impact of the Middle East conflict is simply not known at this point," referencing heightened uncertainty for H2 2026 earnings performance.
  • Free cash outflow guidance of $25 million-$50 million assumes oil moderates in the second half; continued high oil prices or extended volatility could further pressure liquidity and financial flexibility.

SUMMARY

Management attributed a late-quarter surge in demand, particularly in Specialty, to a combination of higher oil market volatility and customer preference for local supply, leading to an upward revision of full-year adjusted EBITDA guidance. The company disclosed that Rubber segment profitability deterioration was chiefly due to contract pricing outcomes, with only limited near-term recovery anticipated given fixed price structures for 2026. Several macro and regulatory factors, including European antidumping duties and shifting North American trade flows, were highlighted as potential longer-term catalysts for regionally-advantaged production. Capital allocation is concentrated on cost reduction initiatives, lower capital spending, and aggressive working capital management, with at least $30 million of cash expected to be unlocked by year-end. Management emphasized that while contractual margin protections worked as intended, persistent visibility risks tied to the Middle East conflict, client inventory strategies, and feedstock price swings remain integral watch points.

  • European emission credit timing will shift earnings mix toward the second half, creating a more balanced 2026 profit cadence versus historical trends.
  • The company’s $90 million CapEx estimate marks a strategic retrenchment from 2025 investment levels to reinforce liquidity.
  • Freight market recovery—evidenced by the U.S. March ATA Index reaching its highest since 2017—was highlighted as a positive signal for replacement truck tire-related Rubber segment demand.
  • Contractual pass-through mechanisms are functioning as designed in both segments, with price actions in non-contract Specialty volumes actively pursued to neutralize raw material and logistics headwinds.

INDUSTRY GLOSSARY

  • Adjusted EBITDA: Earnings before interest, taxes, depreciation, and amortization, excluding certain items defined by the company; used as a profitability proxy in financial reporting.
  • Emission credits: Tradable instruments within EU regulatory frameworks that companies can use to comply with regional emissions limits, affecting profit timing for emitters such as Orion Engineered Carbons.
  • Pass-through mechanism: Contractual structure in which raw material cost changes, such as for oil, are automatically reflected in customer pricing, limiting exposure to price swings.
  • ATA Index: The American Trucking Associations’ monthly freight tonnage index, indicating market activity in U.S. trucking and freight.

Full Conference Call Transcript

Corning Painter: Good morning, and thank you all for joining us. I'll start with a few high-level comments on our first quarter results. Then I want to touch on some of the bigger picture themes because they are directly related to how we're managing the company in these dynamic times. Then I will hand the call over to Jon to discuss Q1 results in more detail before some concluding remarks and Q&A. Starting on Slide 3. We feel good about our first quarter results. Adjusted EBITDA of $46 million was ahead of our internal expectations despite a relatively slow start to the quarter. Building from that start, we experienced a favorable progression with demand improving meaningfully during the month of March.

The demand pickup was most pronounced in our Specialty segment with broad-based improvement across most end markets we serve. Notably, demand strength has persisted through April and into May. This gives us confidence to increase our full year adjusted EBITDA guidance range, which we'll address in a moment in more detail. Naturally, stronger demand may reflect a response to the move in oil prices and uncertainty about future costs. But we also believe the demand uptick reflects a shift in customer preference towards prudent, more dependable and more local regional suppliers because of the concern about extended supply chain. I think it goes without saying just how fluid the landscape has become.

Energy prices are one factor, but our broader supply chain uncertainties related to the availability of crude oil and its derivatives being disrupted by the Middle East conflict are also in play. We see these dynamics as creating opportunity for Orion to showcase the inherent resilience of our business and the agility of our entire organization. Most pointedly, we believe we are poised to benefit from our footprint, which is under-indexed to Southeast Asia relative to the global carbon black industry. Our large global customers that have substantial production in Western Hemisphere should also be positioned to benefit from the current situation in the Middle East, as Middle East and Asia-based production is likely to be the most impacted.

Given the almost daily volatility, I wanted to share how proud I am of the Orion team. Our actions include balancing demand responsiveness with continued judicious inventory management. We have adroitly and proactively been executing pricing actions and purchasing decisions intended to protect margin as well. I have provided the broader context of how to think about this conflict from Orion's perspective on Slide 4. As you know, 2026 is playing out against a rapidly evolving backdrop. To be certain, periods of geopolitical turbulence can reshape supply chains in precipitous and lasting ways, setting up a new normal.

If there is just one takeaway from this slide, it would be how the current backdrop is reinforcing the value of reliable, local manufacturing and logistics. In concrete terms, that means having the product in region with more stable raw material and logistic costs. It plays to Orion's supply and manufacturing footprint. A couple of other considerations on this slide. We don't mind high oil prices. We've disclosed sensitivities consistently over the years, showing Orion's beneficial P&L leverage to higher oil prices. This is a function of the investments that we have made in productivity and process yields, which are more valuable at higher feedstock prices.

We mentioned how the global supply chain and energy price volatility has boosted demand for our products. Note also, the vast majority of our business is protected by contractual pass-through mechanisms, and these are performing as expected. Our customers generally absorb underlying feedstock cost volatility, where energy prices are not passed along through [indiscernible]. For example, in the spot market in China or a bit more than half of our specialty portfolio, we have been actively and successfully implementing price increases and surcharges to offset the higher feedstock costs and protect margin. For the most part, our feedstock availability has not been impacted by the Middle East, largely because we buy in region or regional production.

As disclosed in our sensitivities, we do bear some working capital burden when oil prices move higher. Jon will elaborate more in a moment. But in short, the working capital headwind based on recent oil prices is manageable. On Slide 5, we highlight actions we are taking, flexing our agility to support our customers, protect our business and create margin opportunity. We have been nimble and responsive to the strengthening in demand. Although not the largest, we do have the industry's most diverse portfolio of reactor process technologies.

Against this backdrop, we are able to leverage our plant network to shuffle some production and fulfillment capabilities across our footprint to respond to higher demand trends and capture incremental opportunities at a premium. Given the macro uncertain, we remain intently focused on company-wide cost reductions. On top of the headcount reductions we already have implemented, we are uncovering additional efficiencies through operational excellence initiatives as well as incremental procurement savings. We remain on track to achieve the previously conveyed $20 million in gross savings as well as our $90 million full year CapEx expectation, which is about $70 million lower than 2025. We mentioned optimizing working capital during our February call.

We now have good visibility on specific pathways focused on inventories, supplier payment terms and receivables that should collectively unlock at least $30 million of cash from working capital over the course of 2026. We are pressing to find additional levers. On Slide 6, we view recent tire industry trade flow data as highly encouraging. Notably, the most recent favorable data was before the Middle East conflict even started impacting global supply chains. Many believe that chemical and rubber manufacturing in Asia will be significantly more impacted than in the U.S. and Europe, strengthening demand in these regions. There are a handful of Southeast Asian countries exporting tires to the U.S., but Thailand is by far the largest.

As shown in the chart on the left, February monthly tire exports from Thailand to the U.S. were at their lowest level in more than 2 years, down 19% from last February and down 28% from last year's peak in May during the 2025 surge to beat newly implemented Section 232 tariffs. Conflict-induced tightness in key synthetic rubber inputs like butadiene and sharply higher other raw material and shipping costs may well -- very well put further pressure on tire exports to the U.S. Exports appear in the import data on a 1- to 2-month lag basis.

But as you can see, in the U.S. tire import graph on the right, pre conflict, February monthly tire import levels declined 9% year-over-year, already the lowest level in 3 years. It's worth mentioning several other potential catalysts or indicators for the second half of 2026 and the setup into 2027. First and most importantly, last week, the European Commission distributed a document outlining as expected definitive findings from its investigation into the dumping of Chinese passenger car and light truck tires into the EU. China is by far the largest export of tires into Europe, comprising nearly 80% of the EU's Asian tire imports last year. The proposed duties basically range from 30% to 52% effective June 18.

Separately, the anti-subsidy investigation there continues. Second, the USMCA trade agreement is scheduled for resetting on July 1. And third, leading auto industrial macro indicators have turned positive with Eurozone and North American PMI readings both exceeding 50 for the last 3 to 4 months. These foreshadow demand improvement in our Specialty segment and possibly an upward inflection in the freight industry cyclical trough as well. Fourth, most recent freight tonnage indexes have depicted acute strengthening. For example, the March ATA Index, a measure of freight tonnage in the U.S. posted its highest level since 2017. Our recovery in the freight market would bode very well for replacement truck tire demand as we discussed last quarter.

With that, I'll hand the call over to Jon.

Jonathan Puckett: Thank you, Corning. Slide 7 covers our Q1 results at a high level. Overall, adjusted EBITDA of $46 million was ahead of our internal expectations, thanks to better demand late in the quarter, which drove 2% higher year-over-year volumes. However, adjusted EBITDA was down year-over-year with essentially the entire bridge attributable to the outcome of our 2026 calendar pricing agreements within our Rubber business. Our Specialty segment was a bright spot in Q1 with adjusted EBITDA improving 7% year-over-year to $27 million. Broad-based demand strength late in the quarter helped drive 3% higher specialty volumes. Favorable mix contributed to the earnings growth, more than offsetting a fixed cost absorption headwind from an inventory draw, in part reflecting the higher demand.

Our Rubber segment earnings declined sharply despite higher volumes, but results were generally in line with expectations. In addition to the lower annual contract pricing, the pass-through effects of lower year-over-year oil prices and adverse regional mix were also factors. During the quarter, we had a free cash outflow of $48 million, including a working capital use of $54 million, a function of normal seasonality and the incremental impact from higher oil price volatility in March. Capital expenditures of $36 million were in line with expectations, reflecting some residual spending on growth projects that will taper off over the balance of the year.

Slide 8 highlights our Specialty segment's results in Q1, including 7% year-over-year adjusted EBITDA growth on 3% better volumes. In addition to favorable mix, foreign currency was a positive contributor to our earnings bridge, helping more than offset an absorption headwind from an inventory draw. Considering that industrial markets overall remain generally soft, we were pleased with the Specialty segment's gross profit per ton of $675, which was roughly flat on a sequential basis. Looking forward and based on current order books and customer discussions, we expect late Q1 demand strength will persist through our second quarter.

Recovery in demand in China should continue for Orion, where we're making progress in our manufacturing technology improvement at Huaibei and ramping profit contribution at the site. In the past few months, we have made excellent progress resolving technical challenges at this facility. More than half of our Specialty business operates without contract cost pass-through terms. So this is where a disproportionate amount of our commercial team's energy is focused, executing price increases and surcharges to mitigate higher feedstock, energy or logistics costs and protect margins. We are highly encouraged about the demand strength and near-term outlook in specialties, but I will say our visibility beyond the second quarter is limited.

The course and impact of the Middle East conflict is simply not known at this point. We are proactively monitoring order trends in our response to ensure the demand strength is genuine and not situational demand, driven by price increases across the entire chemical chain. Our implied forecast for the second half reflects today's uncertain geopolitical situation. Slide 9 summarizes our Q1 Rubber segment results, including the 53% year-over-year decline to $19 million of adjusted EBITDA. Let me reiterate the factors contributing to the bridge, including the annual pricing outcome from our 2026 supply agreements, adverse regional mix and the pass-through effects associated with lower year-over-year oil prices in Q1 that were down about $10 a barrel.

The segment's overall volume improved, including strong year-over-year gains in Asia and modest growth in EMEA, more than offsetting lower volumes in the Americas that was impacted by low tire channel sell-through due to severe weather early in the quarter. On the right side of the slide, we have some forward-looking commentary. Based on current order books, we see the demand improvement witnessed late in the first quarter continuing through the second quarter. Our contractual pass-through provisions will continue to protect Orion from oil price volatility even as we continue to proactively optimize feedstock purchases.

We expect the Middle East conflict disruption will drive purchasing preferences to local regional supply chain, which is consistent with our footprint and should benefit Orion, but we have limited visibility into the second half of 2026. On Slide 10, you will see that normal seasonality and oil price volatility late in the quarter resulted in a net working capital use of $54 million, leading to an operating cash use of $12 million. After CapEx of $36 million in Q1, our free cash outflow was $48 million. Net debt ended the quarter at $965 million, resulting in net leverage and a net leverage ratio of 4.2x. This ratio is comfortably below what is required in our credit agreement.

We ended the quarter with nearly $200 million in liquidity. With that, I will hand the call back to Corning.

Corning Painter: Thanks, Jon. On Slide 7, we share updated guidance. We're raising our full year guidance by $10 million to a range of $170 million to $210 million. We now expect our earnings split between the first and second half of 2026 will be roughly 50-50 because of the timing of annual European emission credits issuance has shifted from Q2 to Q3. Our implied second half guidance anticipates modest weakening of market conditions and typical seasonality. Sustained strength in the current order books would take us to the upper end of this guidance range. Should the macro lead to a pronounced second half weakening in our markets, we could reach the lower end of our guidance.

With the surge in volatility in oil prices and related working capital headwind, we now expect a full year free cash outflow between $25 million and $50 million, which is based on the assumption that oil prices remain elevated through Q2 before moderating to the mid-80s per barrel in the second half of 2026. Second quarter cash flow will be consistent with first quarter and should improve in the third quarter and turn positive in the fourth quarter. This cash flow range and cadence is consistent with our rule of thumb sensitivities on oil prices, which have held true even in the current global uncertainty. On Slide 12, some concluding remarks before we open the call to Q&A.

Again, I'm proud of Orion's agility against a tumultuous backdrop. The team is energized and working diligently to respond to higher customer demand, manage input cost volatility, execute on price increases and surcharges to protect margin dollars and to mitigate business risk. While testing our organization, we also believe the challenging environment is providing an opportunity for Orion to showcase our inherent resilience. Beyond feeling good about Q1 results and raising our full year guidance despite the turmoil, looking further out, we're increasingly optimistic about how the current trends set up for an earnings recovery in 2027. With that, Michelle, let's open the call for Q&A.

Operator: [Operator Instructions] Our first question comes from the line of Laurence Alexander with Jefferies.

Kevin Estok: This is Kevin on for Laurence. So you saw that meaningful pickup in orders in March that lasted through May. And I guess to what extent do you think that, that recent order strength is being driven by customers that are securing supply versus like underlying -- true underlying demand growth? I just want to know how sustainable you think this dynamic could be when and if supply chains eventually normalize?

Corning Painter: Sure. So let's divide that into 2 markets. On the rubber side of the house, there really isn't much in the way of inventory building, that kind of thing, especially on carbon black, just given the nature of the product and the quantities that are consumed in it. So we think that reflects tire manufacturers making more tires in our key markets right now. If we move into the specialty area, okay, there is a supply chain before us -- between us and the end consumer for, let's say, the consumer-based portion of that. Again, our read, and we've been really cautious about this. This is prebuying, trying to get ahead of a price increase, something like that.

But our read is our direct customers have orders for that product. And then, of course, some of that specialty product goes more into the infrastructure side, that kind of area, and that's going to be less impacted by those dynamics.

Kevin Estok: Got it. Okay. And then just a second question. So like with the rubber EBITDA down, I guess, curious to know whether you think that Q1 could be the trough? And I guess, how do you expect pricing and versus cost to trend through the remainder of the year?

Jonathan Puckett: Sure. So in rubber, for the most part, the pricing is set in an annual negotiation process. So we're in for this year's profitability in pricing. We were struck last year by like a perfect storm of many different factors, which I think really weakened the pricing environment. As we look forward for 2027, I would say we see a strengthening in that environment compared -- certainly compared to where we were last year in terms of fewer imports in terms of supply-demand balance. And in talking to large customers recently, Tier 1 customers, a renewed commitment of these guys to hold on to their market and rebuild from where they are.

Operator: Our next question comes from the line of John Roberts with Mizuho Securities.

John Ezekiel Roberts: Nice guidance. Are you seeing a lot of differentiation between the specialties end markets between plastic masterbatch versus coatings versus inks? Those customers have a lot of their other ingredients going up a lot because of the Persian Gulf conflict. So I don't know if they have differentiated behaviors?

Jonathan Puckett: Yes, John, great question. But right now, I'd say it was really quite across the board, geography-wise, end market-wise, we just saw a stronger level of activity. And maybe if you think about the PMI activity, that makes sense as well as, again, direct customers feeling they've got orders for it. If you look at the margins, it was obviously also a good quarter for us in terms of the premium grades taking part in that rally.

John Ezekiel Roberts: Okay. And second question, I know it's not a big market, but it's -- I think it's your largest Asian market is South Korea. It's one of the countries that stressed the most from the Persian Gulf conflict. So I'd appreciate your thoughts on what you think happens in South Korea here as we go through the next couple of months.

Jonathan Puckett: Yes. I think South Korea is just indicative of, let's say, a lot of Asia ex China, let's say, in that people who are reliant on petroleum and petroleum derivatives from the Middle East are in just a much more difficult situation. Even if this thing opens up tomorrow, I think it's very clear, it's going to take quite a while to get back on its feet. So that's a negative, obviously, for business activity in those areas, including Korea for us. But I think it's a real positive for manufacturing in the U.S. and yes, manufacturing in Europe as well.

Operator: Our final question comes from the line of Josh Spector with UBS.

Joshua Spector: I was wondering if you could unpack the rubber bridge a little bit more. I mean being down $20 million was kind of more than we thought it would. We thought the pricing reset was maybe a $15 million headwind year-on-year. And you had a pretty easy comp from a mechanical outage a year ago that we thought would help by about $10 million, but we didn't really see that. So what were some of the other factors that maybe drove that around? And is that price impact on an annual basis much larger than what I'm sizing?

Jonathan Puckett: Sure. No, the price impact was larger than what you expected. And if you look at our volume, that was even having lost some volume in some of the key, let's say, like Americas markets. So I would look at that. That was a little bit offset by the higher oil pricing that we had in it, but pretty much the whole story there is pricing.

And again, I look to '27 and we look at what's happening in tire imports and the data on those graphs, the tumult in the marketplace, the resolve to hold on to their share, the ramping of some of the new investments in North America, I think it's a better setup, but last year was really tough.

Joshua Spector: Did you get any cost help from the lapping of the manufacturing outages a year ago? So I guess I'm trying to figure is pricing down $20 million a quarter or $30 million a quarter?

Jonathan Puckett: I would say it's not down quite that amount in either one, if you think about the net for the whole year. But yes, certainly, we had better manufacturing than we did last year, but we also had lower volumes in some of our markets. So in those markets, there's a fixed cost component as well. Does that answer your question, Josh? I'm not sure.

Joshua Spector: Yes. I mean that's helpful. And we can follow up if need be. And if I could just ask one other one, I guess, on the specialty side. I mean you made the comment like you have a lot of pricing and surcharges. You feel pretty good about that. Do you think that generally matches your cost movements as you look at 2Q? Or would you expect a headwind in specialty margins that then recover in 3Q?

Corning Painter: No, no. I think we had to raise prices again in May to -- because we saw, for example, natural gas in Europe move. We're very intent on trying to keep those -- keep that even for us. All right. Thank you all. I appreciate everyone's time today and your actually excellent questions given the situation that it is. I just want to once again thank everyone and our investors' interest in it and to say, look, we are determined to make the most of the current market from all. It actually creates opportunities for Orion in terms of a reset of how supply chain work and something that can go in our benefit, and we are all over that.

Beyond that, I look forward to a continuing dialogue with many of you over the next coming weeks and months. Thank you, and have a good rest of your day.

Operator: Thank you. This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation, and have a wonderful day.