Okay, last but not least, we have Orion Engineered Carbons. Orion, ticker OEC, headquartered in Luxembourg, but with its executive officers in offices in Spring, Texas, is a leading global manufacturer and supplier of carbon black products. Carbon black is a solid form of carbon produced in powder or pellets and used to create a variety of desired physical, electrical, and optical qualities of various materials. Carbon black products are primarily in the form of rubber carbon black, used in the reinforcement of tires and other applications, and specialty carbon black used as additives in production of polymers, batteries, printing inks, and coatings. Orion is one of the largest global producers of both.
Orion has around 56 million shares outstanding, closed yesterday at $5.07 for a $280 million market cap, net debt of $918 million for a $1.2 billion enterprise value. Joining us is new CFO, Jon Puckett, and VP of Investor Relations, Chris Kapsch. John joined Orion as CFO in 2025 and has over 30 years of financial leadership experience, including 14 years at Celanese, where he served as CFO for the acetyl segment. Chris joined Orion in 2024 as VP of Investor Relations following nearly 30 years in institutional sell-side research focused on specialty chemicals. Now I'll turn it over to CFO-
Thanks, Mike.
to Jon.
Yeah. Appreciate it.
Thank you.
Thanks. Yeah, Jon Puckett, and thanks for the introduction. I appreciate it. New to Orion, and so let me just take you through just kinda an overview of Orion and then some of the value drivers for us and then a little bit on the just a financial update, if just for folks that may or may not have seen our most recent financials. Look, I'll just set the stage for us right now. You're gonna hear us say a lot about free cash flow. That's really the number one financial priority I have for 2026 and beyond, is we've got to be a regular free cash flow generator. There's some charts in here that'll show you why we haven't been.
There's just been some EPA investments and some other things like that, but that's what our main focus is right now. You'll also see in our outlook as we go into 2026, we've taken a pretty big step down that's primarily driven by pricing and the dynamics in the rubber tire market. That's a big step down from 2025 and 2026. We think that this is relatively hitting a trough level for us. You'll see some stats here and some data here that supports that view. Okay. We'll get into it here. You know that. Then just overview. You said it, we have a long heritage in carbon black. Unlike a lot of these folks that have been up here, we make one thing.
We make carbon black, and it goes into specialty application, and it goes into rubber applications. We've got 160+ years of heritage in carbon black. We're the number one specialty producer of carbon black globally, and number three when it comes to our rubber business. We've got 15 production units around the world in each major region of the world. Last year, we did EUR 1.8 billion of revenue, EBITDA EUR 248 million, and free cash flow of EUR 55 million. Good free cash flow conversion. If you look at this is a lot of what you hit on. Let's kinda take this to the next level of physical, electrical, optical. Think about physical properties. Tires.
Tires is a really big end market for us. We make tires stronger. We make tires, we make the tread wear longer. That's the strength in use that we provide in carbon black. You think about electrical properties. We have conductive grades of carbon black, and that goes into applications like in battery electric storage, electric vehicles. That's a new opportunity for us and a growth opportunity for us. You think about optical properties. There's a couple things here. Think about deep, dark, rich jet blackness in your car, in your paint. That's a really high value application for us, in automotive OEM, coatings. And then the last thing here that I wanted to look at was conductivity.
Conductivity is really where you've got the ability to provide conductivity across an electric charge in electric battery formation, also in electric storage batteries, battery electric and EV. Okay? Lots of different end applications. We're ubiquitous. You have, at some point today, maybe right now, you have encountered carbon black, whether you know it or not. Think about a few things like your cell phone case that has to control electrostatic. Like, that's one of those areas where carbon black is in and plays nicely there. Wire and cable is an opportunity. Synthetic fiber, think about athleisure athletic wear. We have applications there as well. We talked about conductivity.
The inside of your car, there are plastic applications there, and we use carbon black, or our customers use carbon black as a UV protectant. Lots of different end applications. What's our focus right now? I said it earlier, this is in the middle of the page. It's free cash flow generation. Despite a challenging environment we've been through and been in, and in particular in 2026, we're continuing to focus and expect free cash flow generation through this cycle that is trough. We're gonna do it through working capital actions, and we're gonna do it through lower capital spend.
We're confident in the ability to drive free cash flow through a tough cycle. If you go to the bottom left of this slide, this is where your near-term focus is reducing debt. You know, we finished the year at about 3.7x net debt to EBITDA. With EBITDA coming down through 2026, that's gonna get a little bit. You're gonna push closer to the 4x and closer to 5x. We'll cover that later. But what our focus is now is not on growth applications. We've spent capital on growth. We really need to go to loading up our plants and running our plants as efficiently as we can, and that's what our focus will be.
We've got a business that has a regular recurring demand for carbon black products. It may not be the sexiest grower in the world, but it is something that grows at single digit levels, GDP type levels in rubber carbon black and GDP plus in specialty. There's some really unique applications in specialty that where we can drive double-digit growth. Small but growing. Healthy long-term outlook just driven by the structure of the market and the structure of our business really being in each region of the world, and we'll show that and talk about that being regional in this market is really, really important to our customers.
The last thing, just every person that comes up here is gonna tell you they're undervalued compared to their peers and so are we. We'll just move on from there. Rubber carbon black is 2/3 of the business, based on revenue, and specialty is 1/3. We'll get into each one of these businesses in a little more detail. Rubber carbon black. You can see that we're predominantly in the Western world, in the Americas and in Europe, and then a little bit less than 20% in Asia. Most of the applications here are in tires, whether it's OEM tires or whether it's replacement tires. Replacement tires is the biggest market. Then the other market that we're in is mechanical rubber goods.
I think the simple way to think about this is belts and hoses and things like that you see, you know, I'll just say it, under your hood, but a lot of other belts and hoses and things like that. If you look at what are their traditional growth drivers here, miles driven, tire production, vehicle production. You know, like I said, it's maybe not the sexiest thing, right, from a growth standpoint, but it's solid, consistent growth that we see in this market. Then you've got some emerging possibilities or emerging growth trends in sustainability, where you have people that are taking things like tire pyrolysis oil that comes from recycled end-of-life tires, and you're turning that into a raw material, and then you're making a recycled tire from that material.
Small, and you know, there are some elements there that, you know, you've gotta find the right value and use for that application because it is more expensive than what your normal rubber carbon black application would be. EV mobility is a good is another area for us. When you think about EVs, there is significantly more tread wear given the weight and torque of an EV than in an internal combustion engine. That's an area that drives growth for us on top of the traditional growth drivers. This is breaking the applicable growth for us down. Now I mentioned the fact that we are regional, and so it's important that you're in each region of the world. This is about a 2% growth market.
The reason why it's important to be regional is rubber carbon black, I should say, is a lightweight material, fluffy, lightweight material. It doesn't travel long distances well. It can travel distances, but it doesn't do it efficiently. Being a local supplier to folks in North America, in Europe, in Asia is really important to our business, okay? This is really just illustrating the fact that this is a pretty consistent business, okay? It's predictable and consistent. We generate a good return for the business that we have, and it's a pretty, like I said, pretty consistent business here. Specialty carbon black is a little bit more weighted and a little bit more balanced around the world, and the biggest application is for polymers.
Think about, well, like I mentioned, the cell phone case that controls static electricity. Think about your Keurig at home that has a black tint to it. It may or may not, but that's typically gonna have something like carbon black in it. Other applications that you're gonna see is when you drive by a construction site and there are big black pipes. That's the word I was looking for. Big black pipes. Those are gonna sit out at a construction site for a period of time before they get put into the ground. You need UV protection for those, okay? That's an area where carbon black plays as well. Another area here is in automotive.
We talked about the coatings, and there's also paints and coatings. There's a little bit of blend between these, but those are high-value applications for us in paints and coatings. I'd say another thing also in the printing side of this business is labeling that goes on to food packaging as well. There's carbon black that goes into that, and that has to be food grade, and so it's a very specified use that we have in that application. Then the little sliver in green is batteries and other specialties. That's a small but growing application for us, and that's where this conductive grade is really important. Okay. Then the favorable megatrends in specialty really come down to growing consumer demand, mobility, sustainability.
Now, this you'll see in a chart, and I'll talk about it in a little bit, but you have seen some challenges here just from a standpoint of PMI being below 50% for several years. That impacts your ability to grow this business. With a healthy end market demand, you'll see industrial and decorative coatings be an application here. We talked about synthetic fibers. We talked about pressure pipes sitting on the side of the road, the packaging ink, engineered plastics in your phone, adhesives and sealants. Think about the weather seal that's on everybody's car, and in particular, that's more important in an EV environment as you're trying to keep that cabin really, really quiet when you don't have the hum of an ICE engine. That's another application for us. And then automotive coatings, I've mentioned.
Electric vehicles, lithium-ion batteries, that's where in the sustainability side, our conductive grades can we think will be a good grower in the future. This is higher than GDP type levels of growth. You can see that the growth is weighted towards Asia and less so in North America and Europe. Overall, this is a business that grows in sort of a 4% or so growth rate. I had mentioned PMI stability in this business as well. You can see on that EBITDA chart on the bottom left, this is where we've seen the impact of lower PMI. This is where you've seen the impact of consumer behavior, that consumer confidence that has really been struggling as you went through inflationary periods.
Mix has really had an impact here. I just wanted to address that just because that is a trend that we've sort of struggled with. We think that, and you'll see this on some of the other slides, that we're setting up for an improving environment here. Now, that's aside from the events of the world of today, but longer term, setting up for a good environment here. For the investment thesis, we'll go through each one of these. We're a diversified leader in carbon black, and we'll give you a little bit of that. High barriers to entry in the space, and we've had a proven operating discipline across multiple market cycles. There are some, and number four, some secular trends that are happening here and demand shifts that are really gonna benefit us.
I talked a little bit about the free cash flow inflection that we've reached. Okay. We'll go through each one of these, and I'll keep it sort of brief just because there's a lot on this slide. We possess the broadest portfolio of manufacturing here. The second one here is a proprietary gas black application. We are the broadest from a manufacturing technology standpoint. We also, when you look at the bottom on our differentiation, we have customer contracts that are annual, and also they contemplate and take into account the pass-through of costs like raw materials, like you see spiking oil pricing and things like that today. Our contracts take that into account, and we don't bear all the pain of that.
That passes on through to the customer. That gives us the stability that I talked about and that I showed in some of the financial slides. High barriers to entry. You not only have high barriers to entry to build a new carbon black plant, and there's really not, especially in North America, not new carbon black capacity coming in. It's to build a world-scale plant, you're gonna spend somewhere in the neighborhood of $2 billion, and you're gonna have to have all the EPA requirements that we've already spent money on, and I'll show you some of that on our cash flow later. This business, though, has had a really sticky customer base and that's because the regional aspect of the business, being local and reliable is really important.
A lot of times the customer has a specified grade and a specified location, and it's costly and hard to move from one place to another. So there is an element of stickiness here in our business. Stable margins, we talked a little bit about that, but this is just you know, you don't have wild swings here. It's a pretty consistent business, and so that's why our turn to being a consistent free cash flow generator as well is so important. We're also taking cost actions. We're taking actions on headcount this year. We're taking actions on productivity. We're taking actions on efficiency to drive about $20 million of savings on a gross basis. We're also driving lower CapEx on a year-over-year basis and running working capital efficiency programs across the business as well. We have rationalized our footprint.
We consolidated three to five lines to optimize our operations. This also allows us to be more focused in our maintenance CapEx as well. I will just say that another in the space, the biggest in the space, has also mentioned that they are rationalizing capacity in the Americas and in Europe. You'll see that coming. They haven't been specific yet, but you'll see that coming through somewhere in 2026. We've really focused on manufacturing excellence. We had a legacy of probably under-investment in the business, given our heritage through private equity. We have stepped up the maintenance capital spend, and we've invested in reliability, and we're seeing the benefits of that.
We're seeing it from a standpoint of being able to run on lower levels of inventory, lower levels of safety stock, while still hitting our on-time delivery metrics. We do think through this period, this really challenging 2025, that we have, we've enhanced our relationships with our global tire customers. You know, that sets us up nicely for other spot volume opportunities. This is one of the most important charts for us, so there's a lot here. Well, let me just walk through it. The pie chart is the breakdown of how carbon black gets used in tires around the world, okay? It's about 1/3 in passenger cars and light trucks, it's about a 1/3 in trucks and buses, and then it's about 1/3 in off-the-road tires.
Each one of these trends sets up favorably for us as we exited 2025, okay? The chart on the top right is U.S. tire imports, and you can see that over a period of time, the tire imports has increased. As you got into 2025, it had two bumps, two spikes really for exporters to get ahead of tariffs that were coming in, okay? The first tariff that came in was a Section 232 tariff on cars and light trucks. That came in in May, and you can see the significant decrease there. Then you had another tariff come in on trucks and buses, and that came in in November. You see the hump.
This trend is setting up nicely now to get back to a more historically normal level of tire imports. We hit record highs of in the 70% in North America. 70% of the tires were imported plus, 70% plus. That needs to come back, and we expect it'll come back to a 50%-60% range over time. The leading indicator of that activity is your bottom left chart. Thailand is the largest importer of tires, exporter of tires into the U.S. market. You can see from the time that tariffs came in to the end of the year, that's what that chart is illustrating, their exports to the U.S. have come down, okay. The bottom right chart is India, and India is the largest exporter of off-the-road tires, and you can see a similar trend there as well.
Significant decrease in the export activities. This is where we believe that the tariff activity in the U.S. for Section 232 tariffs that are not impacted by the Supreme Court ruling will benefit us, in the near term and in the long term. The other element here, this is freight. This is a freight activity metric, and so this Cass Freight Shipment Index is what we've charted here. You can see that you've had three straight years of lower freight activity in the U.S.. This just illustrates and re-emphasizes that some of the pressure that we've seen in PMI, some of the pressure that we've seen in manufacturing activity. We believe this trend is at a trough. The leading indicator here is freight rates.
Freight rates have gone up recently. We think this turns. If this turns, this really benefits us not only from a tire standpoint on these larger truck and bus tires, but also it impacts us on the specialty side because improved economic activity that ought to drive better mix there, it ought to drive better volume there, it ought to drive that back to what has been a historically higher margin business, okay? Then the other thing here is, there is a USMCA reset that's coming, the U.S.-Mexico-Canada treaty. That's resetting mid-year this year. I would just say that we don't have production in Mexico or Canada, and our competitors do.
If there's any type of tariff coming into the United States with carbon black, then that should set up to benefit Orion, okay? Reshoring activity. I had mentioned, and I'll just re-emphasize, there's no carbon black capacity being built in the U.S., in North America, okay? You have $6 billion of investment from tire manufacturers in North America. $6 billion. This is about a 3% CAGR over the period of 2025- 2030. This is why local supply is so critical and so important. Being here, being local to our tire manufacturing customers is critical to our strategy. It's critical to their strategy.
Security of supply, and especially in a world right now that's gone a little bit crazy, being local is even at a higher premium than it has been in the past. Oops, there we go. This is one for specialty. I'm not gonna go through all of this, but you look at that electrification mega trend and, you know, you see impacts in EVs, power storage, Grid 2.0. We've got, down there in the OEC initiatives, we have what we call a kappa conductivity grade that really sets us up well to take advantage of this as this end market grows. This is the free cash flow inflection slide. You can see in the purple is our EPA spend. We had significant EPA spend from 2020 through 2023. We are done with EPA spend.
Our competitors are not. They're we have two competitors in North America with plants that span the U.S. and Canada that have spend that's either EPA spend or the Canadian equivalent of EPA spend. The estimates on their spend is about $250 million a plant, okay? Thinking of then deploying capital for EPA and then getting a return on that deployed capital for EPA spend, we think this sets up potentially for a better pricing environment for us going forward as they address their EPA requirements and Canadian emission requirements. We are stepping down capital spend from on a year-over-year basis from about $161 million- $90 million, and primarily that's gonna be maintenance capital and not really any growth capital.
That, along with our working capital initiatives, is what gives us confidence in our ability to go drive free cash flow in 2026. Okay. The idea would keep doing that. De-lever, right? You've heard a lot of that from the chem names that have been up here, I'm sure. Just recent financial performance, we'll take a minute here and go through that. I see my timer is clicking down. This is our fourth quarter highlights. We had a better fourth quarter than we originally thought. Demand trends were better than what we had anticipated and what we heard from our customers. We generated EUR 55 million of free cash flow in the year, which is terrific, and we expect to keep doing similar as we go forward.
We had record safety performance, nine times better than the industry average, and our plant reliability, as I had said, was sharply increased, which helps us on our other goals around working capital. This is just a little more detail. We've talked about it. Rubber, adjusted EBITDA, $155 million. Tire imports was the key issue there. Specialty, the big issue here is soft end markets globally, PMI, manufacturing activity, et cetera. We still generated free cash flow of $55 million. Really good free cash flow conversion here. I won't get into this, but just so you know how we built the outlook, I won't get into the left side on the results. I really talk more about the commentary on how we developed the outlook. We didn't expect, in our outlook, a rebound in tire build rates.
We didn't expect, you know, any other positive emerging trends. Even though I've highlighted several of those are not built into our outlook for 2026. What is built into our outlook for 2026 is the challenging price negotiations that we had at the end of the year. At the end of the year, it was primarily with record high imports, lack of government data, late negotiation cycle. We didn't have a lot of room for price in 2026. So that's why we set up the way that we did. That's, you know, ballpark. Well, it's the biggest driver on our step down of EBITDA between 2025 and 2026. We think the trends that I've highlighted set up for a better pricing environment going forward.
Capacity coming out of the system is also another setup that should help pricing going forward, okay? Strong relationships were preserved. Specialty, no real restocking assumed here, okay? I'll just go through this quickly because I know we're getting close on time, and people probably need to leave. Free cash flow of EUR 55 million, we reduced debt. We ended the year at EUR 3.7 million. As we looked at pricing rolling through 2026, we realized we were gonna push up against some of the leverage ratios that we had existing, so we renegotiated our credit agreement and increased our leverage ratios to give us a little bit more headroom in this environment. This just gives you the outlook that we've got.
with that, I'll turn it to you, which EUR 160 million-EUR 200 million of EBITDA, EUR 90 million-EUR 110 million coming in the first half of the year based on our historical seasonal trends, free cash flow of EUR 25 million-EUR 50 million, capital expenditures of EUR 90 million. Sir?
Well, thank you, Jon. We did come up on time, but we started a couple minutes late, so I wanted to squeeze at least two in here.
Okay.
You've been there for three months, but it sounds like you've been there 10 years.
Well, it may feel like that too.
This is very well.
Yeah.
I just wanted to ask, I think this is Orion's first forum since announcing-
Yeah
The variable price surcharge that, this past Friday, up to 25%. You just mentioned on the last call you were discussing possibly giving back price in 2026. How has that changed? How has the impact of Iran changed things?
Let me just address it. A very high percentage of our rubber customers are under annual contracts with pricing that's set, okay? The price increase is really on the specialty side of the business. The specialty, you know, it's less than 50% that's contracted on an annual basis there. You've got more that's moving just with the market. You've got more that's moving on value and use in the application that it goes into. That's the area that the price increase is addressing, aside from whatever in rubber may still not be under contract. Spot volumes typically in Asia are not really an area of the world where we contract. That's normally spot volume. We'll try to push price there as well.
This 25% price increase is gonna address the majority of the specialty business that is not under contract. Then we also have a surcharge that's come onto that as well. There's two elements of that price increase that we're pushing. We did it Friday, so we're negotiating with customers now. Usually, customers don't like price increases. We understand that. This is the environment that we're in, and so we really need to respond to it. That's one of the things that's nice about being at a smaller place. I mean, we have 1,600 people. It's not that many for your chemical companies. We can move quickly. We can get all the leadership team on the phone pretty easily.
We did so this morning with Chris and me and talking about all kinds of things that I won't tell you guys here. It's being nimble, right? We really needed to get out as much as we could in front of this, given some of the volatility that you've seen in the world.
To be clear, it's not on the vast majority of the rubber carbon.
That's right.
Right. Right.
The rubber side is sort of set for the year. You have a little bit that plays there. Most of this is gonna be in specialty.
All right. Just last one in the interest of time. Orion took a lot of efforts to rationalize production capacity last year. You mentioned the tire production coming on in the U.S. with the reshoring. What's capacity like now, and how can Orion respond as that comes up?
I think it's tough to think about global capacity here because it is a regional market. You know, your capacity utilization probably sits in the neighborhood of mid-80s or so in effective capacity utilization. You've got capacity that has been and will be added in Asia. Some of that comes to Western markets in the form of tires, some of it comes to the Western markets in the form of carbon black, but I think that's pretty limited. I think most of that stays in Asia. If you had an Asia that was a healthier economic backdrop, you'd have more of that stay in region as well.
You really gotta think about the regional nature of each one of these areas, and North America, you know, relatively stable with investment coming on, okay? Europe is short on carbon black, so they import. Used to import out of Russia, now import out of China and India, but that market is, you know, at capacity. Where any capacity additions are coming in, it's in Asia, but like I said, it's hard to move this product efficiently around the world just because...
Right
of the density of it.
Right. Okay. Well, unless there's any questions from the audience, really thank you so much.
Yeah.
That was a great-
Thanks, Mike.
You answered so much in the presentation, so we really appreciate it and you coming on so soon after joining.
Yeah. Thanks. Thanks so much for having us.
Thank you so much.
Yeah. Thanks. Yeah.
Thanks.
Do you want this?
No. I wanted to see the notes. Thank you. I would just like to thank everyone who participated, both in person and on the phone, and mention that on April 9th, Gabelli Funds will host its Waste and Environmental Services Symposium at this location. We'll see you all on April 9th. Thank you very much again for being here.