Stepan Company Stock

Thank you. Good morning and welcome to the Step-in Company Second Quarter 2026 Earnings Conference Call. During the presentation, all participants will be in listen-only mode. Afterward, we will conduct a question and answer session. To ask a question during the session, you'll need to press star 1-1 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 1-1 again. a reminder, this call is being recorded on Wednesday, July 29, 2026. It's now my pleasure to turn the call over to Mr.

Ruben Velazquez, Vice President and Chief Financial Officer of Steppen Company. Mr. Velazquez, please go ahead.

Thanks, Marvin. Good morning and thank you for joining Stepan Company's second quarter 2026 financial review. Before we begin, please note that information in this conference call contains forward-looking statements which are not historical facts. These statements involve risks and uncertainties that could cause actual results to differ materially including but not limited to prospects for our foreign operations, global and regional economic conditions, and factors of the global economy. details in our Securities and Exchange Commission filings. In addition, this conference call will include discussions of adjusted net income, adjusted EBITDA, pre-cash flow, net debt, and leverage-related metrics, which are non-GAAP measures. We provide reconciliations to the compatible gap measures in the earnings presentation and press release, which we have made available at www.stepan.com under the Investors section of our website. Whether you are joining us online or over the phone, we encourage you to review the investment slide presentation. We make these slides available at approximately the same time as when the earnings release is issued, and we hope that you find the information and perspectives helpful.

With that, I would like to turn the call over to Mr. Luis Rojo, our President and Chief Executive Officer.

Thank you, Ruben. Good morning. And thank you all for joining us today to discuss our second quarter 2026 results. I will share the highlights of the quarter and an update on our key strategic priorities. And Ruben will take you through the financial details. Before reviewing the quarter, I want to recognize our teams around the world for their commitment to safety. Safety remains our top priority and the foundation on everything we do at Step-Up. That focus was evident again this quarter, as we now have delivered the stronger safety performance on record in the last 12 months. Congratulations, team. The second quarter was a strong quarter of execution for Stepan.

Lot-based volume growth and margin recovery, together with the initial benefits from project catalyst actions, drove significant improvement in earnings. I want to highlight a few elements of our second quarter performance. adjusted EBITDA was $74 million, up 45% versus the prior year, with all three levers contributing to the results. First, volume growth. Organic volume grew 6% with growth across all our end markets. We're growing share in many of our strategic end markets. Second, margin recovery. The pricing actions we are implementing, together with the discipline and execution of our contractual pass-through mechanisms, contributed to margin recovery during the quarter and helped offset higher raw material costs. Third, productivity and cost out. Project Catalyst remains on track, with savings ramping up in line with our plan. We are on track to deliver our savings commitments for the year.

Looking at the consolidated results, net sales were $684 million, up 15% versus the prior year. higher selling prices, higher volume, favorable product and customer mix, and favorable currency translation. Adjusted earnings per diluted share were $1.18, more than double the prior year. Finally, we remain focused on cash generation and balance sheet deleveraging. We finish Q2 with a net leverage ratio of 2.5 times. We continue to advance the previously announced agreement to sell a parcel of non-productive land adjacent to our plant in Joliet, Illinois. subject to customary closing conditions. We were pleased with the breadth of the growth during the quarter. We also believe a portion of the incremental demand we experienced in the quarter reflects some customer pre-buying in response to the geopolitical and raw material uncertainty.

We are considering that potential timing effect as we plan for the second half of 2026. We remain committed to a balanced approach to capital allocation. During the quarter, we invested significantly in working capital, due to the escalation of raw material costs and higher sales. We executed flawlessly our capex plan across our site. And finally, the company paid $9 million in dividends. Last year, we increased our dividend for the 58th consecutive year. With that, I will turn back the call back to Ruben to walk you through the financial details for the quarter.

Thank you, Luis. As shared in our second quarter 2026 earnings release, reported net income was $22.9 million or $1.00 per diluted share, up 102% versus $11.3 million or $0.50 per diluted share in the prior year. Reported results include a $5.1 million pre-tax restructuring charge or $4 million after-tax, largely related to the previously announced closure of our Fieldsboro, New Jersey site and the decommissioning of select assets at our Millsdale, Illinois and Staley Bridge United Kingdom facilities. The cash impact associated with restructuring was approximately $6 million during the quarter. The plan to reduce our global salaried works as announced today is part of the previously announced project catalyst efficiency initiative. The majority of the expenses associated with these workspaces actions is expected to be recognized during the second half of 2026. The company anticipates full-year restructuring charges in the range of $75 to $80 million, which is in line with prior communications. Let's now move to slide 5, which shows the adjusted net income bridge for the second quarter of 2026 versus the second quarter of last year.

Adjusted net income was $27.1 million or $1.18 per diluted share up 126% versus $12 million or $0.52 per diluted share in the prior year. The increase in adjusted net income was primarily due to increased earnings in surfactants and in polymers, partially offset by higher corporate expenses and a higher tax provision and stronger earnings. Adjusted corporate expenses increased $2.7 million, or 17%, driven by normal inflation and higher incentive-based compensation associated with improved operating rating performance. Moving now to slide six shows the total company adjusted EBITDA breach. adjusted EBITDA was $74.4 million, up $23 million, or 45% versus the prior year. This increase was primarily due to higher surfactant of volume earnings driven by sales volume growth, margin recovery, and catalyst savings partially offset by the higher corporate expenses. I will now cover each segment in more detail. Turning to surfactants on slide seven, net sales were $484 million, up 18% versus the prior year.

Selling prices were up 12%, primarily due to the pass-through of higher raw material costs, improved product and customer mix, and the practicing actions implemented. Reported volume grew 3%, and organic volume increased 7%. Foreign currency translation positively impacted net sales by 4%. The organic growth was broad-based with all end market and regions delivering organic volume growth led by industrial cleaning, laundry, construction and industrial, and oil field. Our strategic and markets combined grew high single digits. So the fact that adjusted EBITDA was $55 million, up $20 million or 59 percent versus the prior year. North America and Asia earnings improved on product-based volume growth, catalyst savings, and the recovery of the production timing and absorption impacts that we discussed on our first quarter call.

Latin America earnings increased on double-digit organic volume growth, pricing execution, and margin recovery. Europe was up modestly on organic growth anchored in laundry, household and institutional cleaning, and construction and industrial applications. Moving to polymers on slide eight, net sales were $178 million, a 9% increase versus the prior year. Selling prices were up 3%, primarily due to pricing actions and the pass-through of higher raw material costs. Sales volume increased 5% in the quarter. North American volume was up strong double digits, driven by rigid polyols and ethylene hydrate, including significant growth in our spring foam product line. This was partially upset by lower volumes in Europe and Asia.

Foreign currency translation positively impacted debt sales by 1%. Polymer adjusted EBITDA was $31 million, up 22% versus the prior year, primarily due to sales volume growth and margin recovery. North America EBITDA was up $5 million on strong volume growth and margin recovery. Europe improved modestly as margin recovery helped offset construction demand that remained soft. Asia was slightly lower on software demand in China. Specialty product net sales were $22 million, an 8% increase versus the prior year, and volume increase 4%. Adjusted EBITDA of $6.5 million was slightly down, primarily due to less favorable product mix within the medium chain triglycerides product line.

Now turning to cash flow and the balance sheet on slide 9. Cash flow operations before working capital was $56 million in the second quarter, including a $6 million cash impact associated with restructuring activities. Excluding restructuring cash impacts and working capital investments, cash flow operations increased significantly. The cash flow was a negative $15 million after capital expenditures of $23 million. The cash flow reflected a $58 million working capital bill associated with stronger sales and higher raw material costs. We ended the quarter with net debt of $534 million and net leverage ratio of 2.5 times, versus the 2.7 times we reported in the first quarter and 2.9 times in the second quarter of last year. Improving cash generation and leveraging the balance sheet remains a key focus across the organization in the second half.

With that, I will turn the call back to Luis for an update on our strategic priorities and project catalysts.

Thanks, Ruben. Our strategy continues to be anchored in four pillars. First, customer-centric innovation to drive top-line growth. Second, diversification of our markets and customers, accelerating growth in higher value and markets while extending our reach into Tier 2 and Tier 3 customers. Third, operational excellence, with a continued emphasis on the reliability and resiliency of our manufacturing network and supply chain, including ongoing improvements at our flagship Noselle site. And four, financial strength through a disciplined focus on free cash flow generation, leveraging the balance sheet, and prudent capital allocation. We continue to make progress against these priorities during the quarter. Surfactant growth was broad-based across our strategic end markets and our Tier 2 and Tier 3 customer base.

North America Polymers deliver double-digit growth in rigid polyols and PA, supported by significant growth in our spray foam initiative. We deliver this growth while recovering margin in an inflationary raw material environment which reflects disciplined commercial execution. Finally, we continue to improve the reliability and resiliency of our manufacturing network. We're a flagship MuleZero site at a great quarter in terms of production volumes and improving all key operating metrics. Our Pasadena, Texas site continues to ramp up production and deliver the expected supply chain savings embedded in project catalyst. Pasadena remains a critical enabler for strategic future growth in specialty accoutsulates. Let's move to slide 11 for an update on Project Catalyst.

As a reminder, Project Catalyst is our comprehensive plan designed to further optimize our asset base and create a more productive and agile organization to enable balanced growth. The program is expected to deliver approximately $100 million in pre-tax savings over two years, with around 60% of the savings expected in 2026. Savings are ramping up in line with our plan, and we remain on track to deliver the committed savings this year. On footprint optimizations, we completed the closure of our Fieldsboro, New Jersey site and the decommissioning of select assets and mutual and stately bridge during the first half. We are consolidating those volume into more efficient sites within our network. The transition remains on track, and we are delivering the expected savings. We continue to actively evaluate opportunities to further optimize our asset base and manufacturing footprint.

This includes identifying additional ways to unlock value and monetize non-productive assets. We will announce future interventions and projects once they are finalized and approved. As part of the organization effectiveness component of Project Catalyst, we announced today a plan to reduce around 100 salary positions across the company. This will be implemented during the third quarter. During the past few quarters, we took a disciplined and deliberate approach to minimize the impact of this action through normal attrition, pausing external hiring, and emphasizing internal talent. We are committed to supporting our affected colleagues through this transition in line with our People First culture. Looking ahead, we're executing a balanced strategy focused on top-line growth, margin expansion, and disciplined cost-out initiatives.

We believe we are positioned to continue delivering growth in our key strategic businesses, including crop productivity, oil field, Tier 2 and Tier 3 surfactants, and North America polymers. Despite the ongoing significant market uncertainties and challenges, the organization remains focused on executing our growth opportunities, productivity plans, and cash interventions. With these actions and our strong first half results, we believe we are well positioned to deliver full-year adjusted EBITDA goals. growth, positive free cash flow, and continued the leveraging of the balance sheet in 2026. This concludes our prepared remarks. At this time, we would like to turn the call over for questions. Marvin, please review the instructions for the questions portion of today's call.

Thank you. At this time, we'll conduct a question and answer session. As a reminder, to ask a question, you'll need to press star 1-1 on your telephone and wait for your name to be announced. To withdraw your question, please press star 1-1 again. Please stand by while we compile the Q&A roster. And our first question comes from the line of Mike Harrison of Seaport Research Partners. Your line is now open.

Hi, good morning. Good morning, Mike. Good morning, Mike. Congrats on a strong quarter. I'm curious, as we look at the surfactants volume up 7% organically and polymers up 5% organically, I believe you referenced that you thought there might be some pre-buying embedded in there. And just looking at those two segment-level volume numbers, I'm curious, you know, How much of the volume strength that you saw this quarter do you think was related to pre-buying?.

Great question, Mike. Look, so we are very pleased with the volume growth across our three segments, right? And of course, we are significantly pleased with the 74 million of EBITDA. But I want to be very clear that we believe probably between five. uh... and and so for the midpoint of five to ten million ebitda is that fact all the three dying into to so uh... i agree that a couple of points uh... of that is is some of the pre-binding we saw because of the iran conflict so collier at five to between 5 and 10 million EBITDA from Q3 to Q2.

I was hoping maybe you could give a little bit more color on the opportunity in the polymers business for spray foam. I see in the slide deck here that the volumes were up 3x year on year. I understand you started from $1. relatively small number but where do you think that business can go in in in the next year or two as you presumably pick up some market share and kind of build out your position in that relatively new space.

Great question and you know we are pleased with our initiative on spray foam. We are committed to this market. This is a wide space for us because, as you know, we were focused on the lamination piece. historically has been very strong and has been growing, you know, high single digits. So that's why we really want to participate in it. I'm not going to give you an exact forecast. I will say that I'm pleased with the 3x. Of course, it's a very low base, as you mentioned it.

But the important piece here is to have a good portion of the market and grow with the market in the future. We all believe in the next five to 10 years, a spray foam will continue growing as a market as it did in the last decade.

and we want to participate out of that market group. All right, and then just in terms of the role raw material environment and what you guys are seeing in pricing, I'm curious if you can help us understand the margin impact that you saw this quarter in both surfactants and polymers related to that raw material versus pricing. Is it possible that we still haven't seen the biggest impact of inflation flowing through the P&L yet, and maybe that's going to be happening in Q3. And I guess in terms of pricing, you mentioned in your comments, Luis, that there was disciplined execution on pass-through mechanisms. And I'm just curious if you've taken, you know, a different, a approach on that pass-through in this inflationary environment than you did a few years ago.

Great question, Mike. No, we are not taking any different approach than the past and what our contracts allow to execute. What I would say is that it's a mix of many items. There are things that are going up, there are things that are going down. like coconut oil. We talked about that a lot in the last few quarters about the escalation of CNO and CNO actually has come down significantly. So, for example, CNO now is 13% lower than Q2 2025, but we saw the in all the other oil-related raw materials. And we, of course, we still have inventory at the lower cost. So at the end, it's a mix of things coming down, things going up.

And what I would say is, I don't think we are in a normal margin situation yet. But of course, oil goes down $10 and then goes up another 10. So we need to see how things normalize in Q3 and Q4. But on the other hand, Of course, we are committed to improve our margins gradually, gradually, and we are committed to continue delivering cost savings so we provide the best value possible to our customers. That's our objective. Our objective is to always provide the best value to our customers, deliver the expected margins and return to our shareholders. So we will continue managing that balance. What I will say again is if you normalize Q2 and Q3, of course you should expect a slightly lower Q3 versus Q2 because the 74 is inflated with volume and a little bit of margins.

All right. Well, I think you maybe anticipated my last question here, which is just trying to understand some of the puts and takes around earnings or EBITDA as we're thinking about the model for the second half. You mentioned the volume pull-forward it may have been five or 10 million. You know, cost savings and project catalysts probably is improving as we get through the second half of the year. And then we have these price versus raw material dynamics. So any thoughts, I guess, relative to... the $124 million in the first half or $74 million for Yvette Dye in the second quarter, how we should be thinking about third quarter and fourth quarter. Thanks.

No, good questions, Mike. As you know, we don't provide full guidance and full forecast. What I will say again is the 74, when you think about volumes and margin, we're saying 5 to 10 million, a little bit ahead of our original expectations. for the quarter, catalyst savings is a major component of what we are delivering this year. So this year is volume, margins, catalyst savings. It's not only volumes and margins. Catalyst savings are playing a huge role. committed $60 million in pre-tax savings, and we are delivering the $60 million in pre-tax savings, more than $60 million in pre-tax savings this year. So if you think the ramp up of that, we are in a situation now where we are delivering, you know, $18 to $20 million of savings from Project Catalyst on a quarterly basis, and we believe we can finish the year with all the interventions that we have announced in a, you know, call it a $22 million run rate savings per quarter. That doesn't take you to the full 100 yet, and we need to keep working on it.

But the majority of the savings from Project Catalyst are already expiring. executed or announced. And we need to keep looking for the other opportunities to get to the full 100 on a run rate basis next year as we promised, you know, since day one of Catalyst.

All right, thanks very much. Mike, this is Ruben. Maybe just to complement what Liz just said in terms of what it comes. So clearly in Q2, of course, we have customers looking to secure some raw materials, and we saw that volume improvement. Of course, volume helps us with the margins together with discipline and catalyst. That was a major component of the Q2 performance. At the same time, when we look at the future, it's important to recall we have some maintenance turnaround that happen in the company around every four to five years, particularly on the polymer side. And that is going to be an impact of $4 million, $4 to $5 million in the second half of the year, those special turnaround.

So those are some of the dynamics that we will need to continue to monitor. Of course, uncertainty in raw materials is still there. I mean, it changes on a daily basis, as Luis mentioned. So we will continue to manage as best as possible a good balance between, you know, the pricing and the raw material dynamics until the end of the year.

All right, thanks for that additional call there, Ruben. Thank you. One moment for our next question.

Our next question comes from the line of Dayton Storms of Stonegate. Your line is now open.

Morning, and thank you for taking my questions. I wanted to circle back to volumes. If I remember coming out of Q1, there was a bit of a timing issue given some of the cold in the US and some challenges in Asia. How much of the volume impact maybe was some of that timing issues getting sorted out in Q2 as well?.

Yes, Dave. So yes, you remember correctly in Q1, we mentioned some impacts that we had on a year-on-year basis. timing production in some of our assets in Asia. So, as expected and as we announced, knowing Q2 that reversed a little bit when you look at it on a year-on-year basis, And that's some of the benefits that we are mentioning in the release, just higher production in some of our assets in Asia, which creates a timing benefit. Of course, we do not quantify it, but that's a benefit that we saw.

Very helpful. Thank you. I appreciate that. And then I did want to ask maybe one more little one around the pre-buying. Volatility isn't necessarily coming down. Do you think that there's more or are you seeing any more pre-buying in Q3 or do you believe that that should be pretty strictly isolated to Q2?.

No, good question, Dave, but we need to see how things, of course, develop with all the uncertainty on geopolitical. As you know, I mean, the key question here is, are we going to go back to just-in-time? or are we going to continue in a just in case environment? Right? Remember, before COVID, everybody managed their inventories and their logistic on a just in time basis. And when COVID hit, everybody moved to a just in case scenario. We are kind of in the middle of that right now. It is not the COVID and the pre-buying and the inventory stocking that we saw during the COVID times. But of course, people are scared. about the raw material availability and people wants to secure their business. So I think we are in a mix of just in time and just in case, I think it's still there and we'll see how long that mix of just in time and just in case just in case continues.

But for sure, it may take a few more months based on the conflict in Iran.

That's great commentary. I appreciate it. If I could sneak in just one more. You had another strong quarter on free cash flow seasonally, and it's now two years in a row where you're, again, having strong free cash flows. I know you've been working on your debt levels. Just curious if you have any additional thoughts around cash generation. If all that goes to that, I know you increased the dividends. Just any commentary there around capital allocation?.

Yes, absolutely. So, we continue to be very disciplined with our capital allocation and effectively during Q2, of course, given the raw material increases and given the increased sales, we did have an important investment in working capital of around $58 million. our Q2 cash flow. On the other hand, of course, cash flow operations, when you exclude those networking capital, impact is strong because we had margin improvement, so that is going well. And we will continue to allocate capex in the best way possible to make sure that we optimize and that we get the right balance for cash. Cash is a priority. It has been a priority, will continue to be a priority moving forward. You see how our leverage ratio has been improving consistently, and we plan to continue having that trend on our debt.

Understood. Thank you for the commentary and good luck in the third quarter. Thank you.

Thank you. We'll move on to our next question. Our next question comes from a line of David Silver of Equity Research Analysts. Your line is now open. Thank you, Freedom Capital.

I did want to maybe just ask for a little more color about... your surfactants results this quarter. And in particular, it seems like, you know, a favorable product mix played a, you know, a pretty significant role. Could you maybe just comment on progress in, I'll just call it your functional surfactants, so oil field. agriculture and other incremental end markets. But maybe just some color about the mix improvement there, and in particular focused on your surfactant segment.

David, happy to hear you. Look, we had a great performance in our surfactant business across many, many regions. It was not one, but of course, North America surfactants is our biggest business and continues and started to deliver significant growth and improvement. And when you think about the North America surfactant business, let me give you a very interesting statistic here. In the first half, we had 500 new customers product combination, 500 new. When you think about, you know, between new customers and new product with existing customer, that is driving very strong double digit growth in our tier two, tier three segment within surfactants. We are growing double digit as well in oil field. We grew significantly in Q1 in ag.

We grew low single digits in Q2. I'm sure you have read all the challenges in the market with fertilizers and all of that because of the conflict in Iran. So that took the market a little bit down, but despite all of that, we were able to continue growing our ag business. So we are very pleased with our focus areas growing extremely well in functional oil field construction and industrial solution, and then growing significantly in tier two, tier three, especially, you know, H&I and I, so industrial cleaning with all those tier two, tier three customers.

Okay, great. Thank you for that. And then I did just want to ask a question about the stage of development or progress with Pasadena. So, the unit's been, I guess, mechanically complete for some time now, but There had been a kind of a series of startup costs and incremental expenses as that facility was ramping up. So, you know, as of June 30 or as we sit here today, I mean, how, you know, how close to full utilization or, or how close to targeted operating efficiency Are you at Pasadena regarding kind of your big new capital expansion project?.

Sure, we are extremely happy with our team in Pasadena. They have done an outstanding job, you know, starting up the site, ramping up production. Safety has been outstanding, you know, more than 10 years without any safety incident in Pasadena. With all the start-up, we have more than 600 contractors and point in time and no incidents. So we're extremely pleased with what the team has done. And when you think about the ramp up in production and safety SAVINGS, WE SAID IN THE PREPARED REMARKS THAT WE ARE AHEAD ON THE TOLLING SAVINGS THAT WE WERE PROJECTING FOR THIS YEAR, MOSTLY BECAUSE OF MIX OF PRODUCTS. AND WHEN YOU THINK ABOUT THE RUN POPPING PRODUCTION, WE ARE ALMOST 80% THERE.

SO BETWEEN 70% AND 80% OF THE 75 and 80 percent. So we still need to inch up the production levels in the site in 2027, but we are already pretty full, and of course we will make it 100 percent full in the next few quarters. Okay, great. Thank you. I appreciate the color.

Thank you, David. Thank you. This concludes the question and answer session. I'll now turn it back to Luis for closing remarks.

Thank you very much for joining us on today's call. We appreciate your interest and ownership in Stepan Company. Have a great day.

Thank you for your participation in today's conference. This concludes the program. You may now disconnect.

This live transcript is auto-generated without human intervention or review.

[Call has ended.]

Good morning, and welcome to the Stepan Company First Quarter 2026 Earnings Conference Call. [Operator Instructions] As a reminder, this call is being recorded on Tuesday, April 28, 2026.

It is now my pleasure to turn the call over to Mr. Ruben Velasquez, Vice President and Chief Financial Officer of Stepan Company. Mr. Velasquez, please go ahead.

Thanks, Victor. Good morning, and thank you for joining Stepan Company's First Quarter 2026 Financial Review. Before we begin, please note that information in this conference call contains forward-looking statements, which are not historical facts. These statements involve risks and uncertainties that could cause actual results to differ materially, including, but not limited to, prospects for our foreign operations, global and regional economic conditions and factors detailed in our Securities and Exchange Commission filings.

In addition, this conference call will include discussions of adjusted net income, adjusted EBITDA and free cash flow, which are non-GAAP measures. We provide reconciliations to the comparable GAAP measures in the earnings presentation and press release, which we have made available at www.stepan.com under the Investors section of our website. Whether you are joining us online or over the phone, we encourage you to review the investor slide presentation. We make these slides available at approximately the same time as when the earnings release is issued, and we hope that you find the information as perspectives contained therein helpful.

With that, I would like to turn the call over to Mr. Luis Rojo, our President and Chief Executive Officer.

Thank you, Ruben. Good morning, and thank you all for joining us today to discuss our first quarter 2026 results. I plan to share highlights of the quarter's performance and provide an update on our key strategic priorities, while Ruben will provide additional details on our financial results. Before reviewing the quarter, I want to recognize our teams around the world for their continued commitment to safety and operational excellence. Safety remains our top priority and the foundation for everything we do at Stepan. That focus was evident as we delivered the strongest safety performance on record during the first quarter of this year. Congratulations, team.

Q1 2026 was an important quarter of execution for Stepan. We advanced our footprint and asset base optimization efforts, delivered net sales growth in a challenging macro environment and continue to generate a strong volume growth across our strategic end markets. Organic net sales were up 4% year-over-year. Organic volume was flat with double-digit growth in Crop Productivity, Oilfield, Industrial Cleaning and in our Tier 2, Tier 3 customer base. This was offset by continued soft demand in European Polymers.

Adjusted EBITDA was $50 million, down 14% versus the prior year, reflecting lower Surfactant results due to lower absorption and production timing issues in Asia, competitive pressures in Mexico, the impact of the U.S. cold snap and continued pressures from elevated oleochemical input costs. Polymers delivered an 8% increase in adjusted EBITDA, driven by 5% volume growth in North America and global margin improvement, which was partially offset by continued softness in Europe.

Specialty Products delivered volume growth of 30%, reflecting a strong demand and new business with our MCT product line. EBITDA was slightly down due to product mix and lag on raw material prices. We continue to execute Project Catalyst safely on time and on budget. These actions demonstrate our disciplined approach to cost optimization while ensuring we maintain the capabilities needed to serve our customers and deliver balanced growth across our higher value end markets.

We remain committed to a balanced approach with capital allocation. During the first quarter, the company paid $8.9 million in dividends to shareholders. Consistent with our long-standing commitment to shareholder returns, our Board of Directors declared a quarterly cash dividend of $0.395 per share. And last year, we increased our dividend for the 58th consecutive year. This track record underscored our confidence in Stepan cash flow durability and long-term outlook.

With that, I will turn the call back to Ruben to walk you through the financial details for the quarter.

Thank you, Luis. My comments will generally follow the slide presentation. As shared in our first quarter 2026 results release, reported net loss for the quarter was $41.4 million or $1.81 per diluted share versus reported net income of $19.7 million or $0.86 per diluted share in the prior year. The current year reported results include a $65.4 million pretax restructuring charge or $51.2 million after tax related to the previously announced closure of our Hillsborough, New Jersey site and the decommissioning of select assets at our Millsdale, Illinois and Stalybridge, United Kingdom facilities. The cash impact associated with this restructuring charge was less than $1 million during the quarter.

Slide 3 summarizes our first quarter 2026 performance. Adjusted net income was $10.3 million or $0.45 per diluted share, down 47% versus adjusted net income of $19.3 million or $0.84 per diluted share in the first quarter of last year. The decrease in adjusted earnings was largely due to lower Surfactant earnings and higher interest expense. Consolidated EBITDA was $49.6 million compared to $57.5 million in the prior year, a 14% decrease. The decline was primarily due to Surfactant earnings driven by lower absorption and production timing differences in Asia, competitive pressures in Mexico, the severe cold snap in the U.S. and higher oleochemical raw material costs still working through our P&L.

This was partially offset by strong polymers performance where adjusted EBITDA grew 8% versus the prior year. Cash from operations was $17 million for the quarter, and free cash flow was negative $14 million, driven by higher working capital requirements, which are typical during the first quarter of the year. We remain focused on deleveraging the balance sheet and maintaining our disciplined capital allocation.

Slide 4 shows the total company pretax income bridge for Q1 2026 compared to Q1 2025. Because this is a pretax view, the figures shown reflect operating performance before the impact of income taxes. First quarter pretax income declined year-over-year, primarily driven by lower Surfactants operating income and lower capitalized interest income. These headwinds were partially offset by improved Polymers performance and favorable effective tax rate.

Important to note, the higher interest expense reflects lower capitalized interest income associated with the start-up of our Pasadena, Texas site. Importantly, several of these drivers, including higher depreciation and the declining capitalized interest associated with Pasadena start-up had no cash impact compared to the first quarter of last year.

Slide 5 shows the total company adjusted EBITDA bridge for the quarter compared to last year. Adjusted EBITDA was $49.6 million, down $8 million versus the prior year. I will cover each segment in more detail, but overall, Surfactants and Specialty Products were down, partially offset by Polymers growth. Unallocated corporate expenses were higher due to normal inflation.

Turning to Surfactants on Slide 8. Net sales were $454 million, up 8% on an organic basis. Selling prices were up 2%, primarily due to the pass-through of higher raw material costs, improved product and customer mix as well as pricing actions. Organic volume was up 2%, driven by double-digit growth within the Crop Productivity, Industrial Cleaning and Oilfield end markets. We also grew double digits in our Tier 2 and Tier 3 customer segments. The Surfactant business achieved volume growth in all global regions, except Asia. Foreign currency translation positively impacted net sales by 5%.

Surfactants adjusted EBITDA for the quarter decreased $7 million or 15% versus the prior year, driven by North America and Asia down $5.6 million. The majority of this decrease was due to lower absorption and production timing differences in Asia. This P&L impact has no effect on free cash flow and represents a onetime event that we expect to recover in future quarters. The cold snap in the U.S. and higher input costs complemented North America Asia EBITDA reduction. Latin America performance was negatively impacted by the competitive environment and high raw material prices in Mexico. Europe and Mercosur continue delivering solid performance anchored in our Crop Productivity franchise.

Moving on to Slide 7. Polymer net sales were $130 million, an 11% decrease. Selling prices decreased 8%, primarily due to the pass-through of lower raw material costs and competitive pressures. Volume decreased 6% in the quarter. Volume in North America was up 5%, driven by Spray Foam and commodity Phthalic Anhydride growth. This was more than offset by a double-digit decline in Europe, driven by ongoing global macroeconomic uncertainty and a depressed construction market.

Foreign currency translation positively impacted sales by 3% during the quarter. Polymer adjusted EBITDA increased 8% versus the prior year, primarily due to North America growing Spray Foam and commodity Phthalic Anhydride and global margin improvement. Specialty Products net sales were $21 million, a 24% increase versus 2025, primarily due to higher volume. Volume was up 30%, reflecting continued growth in our MCT product line. Specialty Products adjusted EBITDA decreased slightly due to product mix and the lag in raw material prices, which we expect to recover in future quarters.

Now turning to Slide 8. Free cash flow generation remains a key focus across the organization. Cash from operations was $17 million in the first quarter and free cash flow was negative $14 million, reflecting typical first quarter working capital build. Capital expenditures were $31 million in Q1. Now turning to the balance sheet. We ended the quarter with a net debt of $511 million and a leverage ratio of 2.7x, which is lower than in Q1 2025.

With that, I will turn the call back to Luis to discuss our strategic priorities and our progress on Project Catalyst.

Thanks, Ruben. I will provide a brief update on our strategic priorities before turning to the progress we're making on Project Catalyst. Our strategy continues to be anchored in 4 key pillars: First, continue focusing on customer-centric innovation to drive top line growth. Second, our diversification strategy, which is accelerating growth in higher value end markets while extending our reach into the Tier 2, Tier 3 customer segment. Third, we remain committed to operational excellence across our supply chain operations with a continued emphasis on strengthening the reliability and resiliency of our manufacturing network, including ongoing improvements in our flagship Millsdale site.

Finally, we're strengthening our financial position through a disciplined focus on free cash flow generation, deleveraging the balance sheet and prudent capital allocation. During the first quarter, we continued to see momentum in our strategic end markets. We delivered double-digit volume growth within our Crop Productivity, Oilfield, Tier 2 and Tier 3 and Industrial Cleaning businesses and delivered volume growth in all Surfactant regions except Asia. Polymers delivered strong volume growth in North America. Specialty Products grew volume by 30%, reinforcing the strategic value of our MCT product line.

These results validate that our strategy is working and that our diversified portfolio continues to create value for customers and shareholders even in a challenging macro environment. We also continue to ramp up our Pasadena, Texas facility, which is a critical enabler for strategic growth in specialty alkoxylates. We continue to expect Pasadena to reach approximately 80% utilization on average in 2026 and full utilization in 2027, which will drive supply chain savings and support future volume growth.

Let's move now to Slide 10. Turning to Project Catalyst. I'm pleased to share that we have measurable progress. As a reminder, Project Catalyst is a comprehensive plan designed to further optimize our asset base and create a more productive, agile and accountable organization to enable growth. The program is expected to deliver approximately $100 million in pretax savings over the next 2 years, with around 60% of the savings expected in 2026. We are on track to deliver the committed savings this year.

Project Catalyst is not a short-term cost reduction program alone. It is a strategic transformation designed to enhance the competitiveness of our cost base while preserving customer service and growth flexibility. During the first quarter, we executed our plans to close our Hillsborough site and decommission selected assets at our Millsdale and Stalybridge facilities. While these decisions are never easy, they are the right actions to consolidate our network into more competitive and productive assets while responding to the structural changes and market demands we continue to see in the global commodity consumer end market.

The program continues to be built around 3 core value levers. First, footprint optimization, which include the exit of underutilized or higher cost assets and improved utilization of our most competitive sites, including the ongoing ramp-up of Pasadena. Second, operational efficiency and cost optimization, including procurement savings and productivity improvement across our manufacturing and logistics network. Third, organizational effectiveness, where we are clarifying accountabilities and streamline decision-making and aligning resources more tightly to our growth priorities.

Today, we announced that we have entered into an agreement to sell nonproductive assets, especially land at our Millsdale site for $30 million. These transactions align with our focus on strengthening the balance sheet. We expect the transaction to close in the fall of 2026 after all due diligence and regulatory items are clear. We continue to actively evaluate opportunities to further optimize our asset base, organizational structure and operating model. These include identifying additional ways to unlock value and monetize nonproductive assets.

Looking ahead, we are executing a balanced strategy focused on top line growth, margin expansion and disciplined cost-out initiatives. While we continue to navigate a dynamic macro environment, and geopolitical environment, including a significant shock in the energy market, global tariffs, raw material volatility and uneven demand across our end markets, we remain confident in our path forward.

With the continued execution of Project Catalyst, a strong momentum in our strategic end markets, the ramp-up of Pasadena and a disciplined approach to capital allocation, we believe we are well positioned to deliver adjusted EBITDA growth, generate positive free cash flow and deleverage the balance sheet in 2026.

This concludes our prepared remarks. At this time, we would like to turn the call over for questions. Victor, please review the instructions for the questions portions of today's call.

[Operator Instructions] Our first question will come from the line of Mike Harrison from Seaport Research Partners.

I wanted to say congratulations to the team on the safety achievements there. That's very important. I wanted to maybe just start with a couple of questions about -- obviously, the Iran war is top of mind for investors right now. And I specifically wanted to understand what are you seeing in terms of raw material impact since the war began? Are you able to push through some higher pricing in response to higher raw material costs? And are there any situations in which you're encountering shortages or other difficulties in procurement?

Great questions, Mike. Look, so of course, our raw materials depend a lot on the oil supply chain, and we are seeing escalation in raw material inflation. The good news is, as you know, we have a good process. We have a lot of pass-through contracts, and we have a disciplined process of increasing prices as well. And what I will say is that in most of the businesses, we have been very successful in passing through the price increases in line with the raw material inflation. So that's working through the system. We see the whole market going up. It's not only us, it's the whole market going up, which give us confidence that pricing will be sticky, more in some places than others, for sure. But in general, we feel pretty good.

The other thing is, of course, raw material availability will continue to be a challenge because there are certain supply chains that are heavily impacted by the conflict in Iran, and there are some shortages in raw materials. The reality is that we could be growing faster than what we're growing now, but we don't have all the raw materials that we need. On the other hand, we have good contracts with our suppliers, everybody's hands on deck. And I think we're getting a good fair share of what is needed. So -- but of course, we will continue working with our supplier to ensure that we can grow faster in the current environment.

All right. Well, you kind of addressed a little bit my second question, which is related more to the demand impacts of the Iran war across your 3 segments. It sounds like you're saying you could have grown a little bit faster if not for maybe some inability to get key raw materials or get supply. I'm curious, though, I would think that Stepan is relatively better positioned than some of your smaller or more regional competitors in terms of your ability to get inputs and get raw materials. So maybe just talk a little bit about how you're expecting -- obviously, consumer demand or consumer sentiment is a little bit weaker here. But are there situations where you might be able to pick up some market share because competitors simply don't have supply in certain product lines or certain regions?

No, for sure, Mike. You are right that we have the scale to win, especially in Tier 2, Tier 3, which is a key segment that we keep focusing our resources. So what I would say is, yes, we have the opportunity to keep growing in those segments. The consumer is still resilient. The consumer is still spending, and we haven't seen any demand issues from the consumer side, and you have seen other companies reporting Q1 and still volumes and pricing and all of that is still pretty healthy.

So we feel good about where we are right now. Of course, things are changing. Things are changing every week and every month. But I will say -- and a lot of people are not providing very long-term guidance because of the volatility and the uncertainty of the current situation. But when you think about things like Q2 where we have way more visibility, we feel pretty good about our plan and about our ability to grow in this environment.

All right. Within the Surfactants business, particularly, you listed out a handful of issues that it sounds like were negative to earnings and to margins in the quarter. And I was hoping that you could provide a little bit more detail in terms of maybe helping to quantify these impacts and helping understand how those impacts are trending into the second quarter and the rest of the year. So you mentioned overhead -- higher overhead and some production timing issues in Asia. Is that something that was temporary in nature? Or is that something that's going to continue to be an issue for the rest of the year?

No. Great question, Mike, and it's temporary, right? I mean we were clear that some of the items that we saw in Q1 are noncash and onetime in nature, right? For example, we had lower absorption, both in Asia and in North America, especially at the beginning of the quarter with the cold snap in the U.S. So we expect some of that to reverse in the future quarters.

So if you think about it, we're happy -- not happy, we are -- I mean, we are okay with the 8% EBITDA growth in polymers. We should grow faster, but fine. The key issue in Q1 was the Surfactant business. And when you think about the $7 million reduction in EBITDA in the Surfactant business, you can think that we should be able to easily recover at least half of that in the following quarters with all the timing and production and all of that. So that's why we view this $50 million EBITDA as not representative of what is the true performance of the company.

I guess just to finish up on that question about the Surfactants and the margin pressure. What about the competitive pressure in Mexico and the higher oleochemical costs? Is that something that should improve as the year goes on? Or is that something that could be a lingering headwind?

Good point, Mike. And look, when you think about -- we talk a lot about CNO in the last few quarters because the reality was that the delta between CNO and PKO, we talk a lot about that in the last few quarters, right, was significant, was something unprecedented, right? CNO in the $3,000, while PKO was in the $2,000 per metric ton. The reality is that when you look at the situation now, they are similar, right? And that incentivize and that helps the whole pricing environment. So what I will say is we still have some of the high CNO raw materials in our P&L going through our P&L. But the reality is that with all the pricing that we're executing now is going to be more sticky because of the relationship between CNO and PKO. So that should help the margin improvement in the Surfactant business in Q2 and going forward.

All right. And then last question I had is just on the Polymers business. Just curious for a better understanding of what drove the margin improvement there. I know you're calling out some spray foam volume, and I'm curious if that's something that's contributing to better margin and better mix there. And really just trying to get a sense of whether we should expect continued margin expansion year-over-year in that Polymers business as the year goes on.

No. Look, our Polymers business is heavily influenced by the base that we had in Q1 2025, right? When you think about -- and you clearly see it in the bridge, right, how our European business is under pressure because construction demand is very soft with everything that is going on in Europe. And then North America improved, but from a very low base, I will say. So again, it's decent EBITDA margins. It's not the EBITDA margins that we deserve, but we improved in North America versus a very low base in Q1 2025.

And as you rightly said, I mean, a lot of growth in a strategic priority for us, which is spray foam. We have talked about that, and we're growing significantly in that space because really the lamination market is more flattish with construction still weak and high interest rate and all of that. So we are not expecting the lamination market to be significantly up this year. None of our customers are projecting that. But we are still improving our business in spray foam, in PA and making sure that we come out of this crisis in Europe a little bit stronger in the second half.

Our next question will come from the line of Dave Storms from Stonegate.

You mentioned in your prepared remarks that you're seeing growth in Tier 2, 3 customers in Surfactants. Just curious as to maybe what's working here? How sustainable is it? And maybe what's the outlook for that going forward?

Look, as we have talked, I mean, we continue to invest in this customer base is a strategic effort for us. We provide not only a product, but we provide a service. We help them formulate their products. We help them solve their challenges on the formulation side. And the reality is that there are a lot of categories where private label are growing share and some of the value brands are winning versus the branded brands. And that's that dynamic specifically for the U.S. now that I'm talking. But we believe in the current high inflation, high gas prices and all of that, the relevance and the growth potential on some of those Tier 2, Tier 3 brands are going to still there, and we are helping them to achieve their targets. So it's a strong business. We're growing double digits. And as I said, it is more than a product. We have other elements that help us win in that space.

Very helpful. Another one for me. And I know we spent a decent amount of time already talking about the Iran war, but just trying to get my arms around maybe any impacts that might have on ag specifically. I know this time of year is when we start thinking about that a little more. Are you seeing any significant second order effects from the Iran war as it pertains to the ag line?

Not really. So as we said in our remarks, I mean, we're growing double digits in Crop Productivity, continues to be one of our key strategic areas. And we don't see any impact. Now of course, the planting season, for example, in the U.S. is mostly done and executed and everything that we had to sell, we sold it for the planting season. So we need to see how things evolve for 2027. But for example, Brazil, which the season starts now is going well. We had great results in Mercosur. So far, we continue to see strong growth and our innovation program, our new product launches with the big ag companies is working and is delivering the growth -- I mean, very strong growth, double digit is very strong in this space.

Understood. And maybe one more for me. Great to see that Project Catalyst is still on track. And I know you gave us a nice breakdown of maybe the cadence for 2026 versus 2027. Are there any nuances that we should be aware of on a quarterly cadence or maybe it's more just a linear step-up as we go through the year? Any thoughts there?

No, great question, Dave, because the reality is that we're going to start to see the majority of the savings of the Catalyst project now in Q2, right? So we made the tough decisions on the footprint side, and we executed all of them basically at the end of March, beginning of April. So you are going to see the majority of the savings ramping up in Q2 versus Q1. So we feel good about Q2 because, again, a lot of the Catalyst savings start now. And as you know, the 60%, we were very clear that the 60% that we're delivering this year, some of that is to cover inflationary pressures and all of that, but the majority of the savings start now.

Our next question will come from the line of David Silver from Freedom Capital Markets.

I did want to follow up on some of Mike's earlier questions. Maybe I would like to focus on the demand side. So apart from the very near-term kind of Persian Gulf-related issues, the consumer generally has been under some pressure. And from your order book, could you maybe just talk about the health or the trend in demand for your traditional book of business? In other words, you've invested a lot in upgrading your product mix, 1,4-dioxane-free, et cetera. Are you seeing the uptake on those products that you anticipated? Or are we seeing, on the other hand, maybe a trading down phenomenon from cost-conscious consumers. So maybe just how you're looking at the demand side for your traditional portfolio of products and particularly for the value-added component of your business mix? Are you seeing the expected demand? Or are things going to be deferred maybe until after geopolitical issues settle down?

No, great questions, David. Look, as we said, one, the consumer is still resilient. So the consumer is still spending money. All the data that you see in all our categories, the consumer is still spending the data. Now we have seen some trade down, right? That's why I made the comment that in some of the -- in some categories, we see private label growing a little bit faster than branded products, but that's actually okay for us. I mean, we -- again, we serve a lot of the Tier 2, Tier 3 consumers.

We serve a lot of value businesses as well. And we don't see this as a negative for Stepan Company. The reality is that the consumer will continue to make choices. And when you think about that relationship between branded products and private label, there is still a big opportunity for the private label and lower-priced brands to grow. That's the reality in many of our categories. So I feel good about what we see out there because, again, the consumer is making some choices, but it's not something radical. And at the end, it is not hurting Stepan portfolio.

Okay. I did want to hone in on one of your more modest portions of your business, but one with growth. So there was a question about your ag business, but I would like to ask you about Surfactants or whatnot for Oilfield. So if anything, I mean, my sense is that there should be a very strong demand outlook for that portion of your business, let's say, going forward, certainly domestically. Could you just maybe talk about your positioning there and what are the opportunities, let's say, over the medium term to benefit from what I believe is probably going to be a pretty strong level of demand for drilling activity and things where your Oilfield products might be positioned to participate?

Yes, for sure. And that's why, David, we keep calling all of those are our strategic priorities, right? Crop Productivity, Oilfield, Tier 2, Tier 3, right? And then within Tier 2, Tier 3, it's not only the low 1,4, it's also sulfate-free with AOS and with other products that we have. So we have a broad portfolio that can complement the consumer piece. But going back to your question on Oilfield, yes, we feel good. I mean we're growing double digits. As you know, our oilfield business is not that big. So the opportunities for growth are still significant for us.

And we are happy with the double-digit growth that we are delivering. And the reality is that the focus, for example, in the U.S., which is our biggest Oilfield business globally, at the end, it's not about more drilling, right? I mean you don't see more drilling, you don't see more fracking going on. But what you can see is the use of more surfactants to make sure that you improve the yield of the current well, right? So that's an ongoing dynamic because you need to make sure that the current wells are more productive.

And for that, you need the right chemistry with the right surfactants to improve the productivity of the well. So again, we don't see more drilling or more wells or more fracking in the U.S. in terms of more or new ones, but we see let's get more out of what we have, and that's where we play a role. So we feel good about this business, and we will continue investing and growing in this business. And of course, there is a lot of import dynamic that in the current environment are tougher and that favor the people that have local production in the U.S. like us.

Right. Okay. And then one last one for me, and it would have to do with your capital spending projections for this year. So I am looking in the appendix and the midpoint of your 2026 forecast for CapEx is $100 million. Can you remind me just what the sustaining portion of that might be? And then more to the point, where is Stepan devoting discretionary CapEx this year? In other words, beyond sustaining CapEx, where -- what's in the budget for this year? Where is that incremental CapEx going to be focused?

David, yes, this is Ruben. Let me take that one. So yes, you're right. I mean we -- in the slides, we mentioned our range for CapEx, which is $105 million to $115 million. So we continue to invest in CapEx. It's something that it's a priority for the company. Of course, we are fully committed to make sure that our operations are operating safely. And then, of course, a lot of this CapEx is to make sure that our operations are well managed and that we have all of the resources and the facilities to operate in a safe way.

A lot of this goes, of course, into our Surfactants operations and manufacturing. And we continue to invest in CapEx. So you have seen that in the last few years, we have been in the range of above $100 million, and we will continue to prioritize our investments into that. There is some of this CapEx that is towards growth, of course. But I would say a significant portion of it is targeting operating safely and making sure that we have the capabilities needed in our plants and in our supply chain.

And let me add, David, as we have talked in the past, when you think about it, 75%, 80% is just for base reliability and infrastructure. We have growth, we have IT, we have other investments in our total CapEx forecast, and we will continue if we see the returns of those projects. But call it the normal CapEx for the company without any other major growth item is around $100 million or less.

And this concludes the question-and-answer session. I would now like to turn it back over to Luis for closing remarks.

Thank you very much for joining us on today's call. We appreciate your interest and ownership in Stepan Company. Have a great day.

Thank you for your participation in today's conference. This does conclude the program. You may now disconnect. Everyone, have a great day.

Good morning, and welcome to the Stepan Company Fourth Quarter and Full Year 2025 Earnings Conference Call. [Operator Instructions] As a reminder, this call is being recorded on Monday, February 23, 2026. It is now my pleasure to turn the call over to Mr. Ruben Velasquez, Vice President and Chief Financial Officer of Stepan Company. Mr. Velasquez, please go ahead.

Thanks, Didi. Good morning, and thank you for joining Stepan Company's Fourth Quarter and Full Year 2025 Financial Review.

Before we begin, please note that information in this conference call contains forward-looking statements, which are not historical facts. These statements involve risks and uncertainties that could cause actual results to differ materially, including, but not limited to, prospects of our foreign operations, global and regional economic conditions and factors detailed in our Securities and Exchange Commission filings. In addition, this conference call will include discussions of adjusted net income, adjusted EBITDA and free cash flow, which are non-GAAP measures. We provide reconciliations to the comparable GAAP measures in the earnings presentation and press release, which we have made available at www.stepan.com under the Investors section of our website.

Whether you are joining us online or over the phone, we encourage you to review the investor slide presentation. We make these slides available at approximately the same time as when the earnings release is issued, and we hope that you find the information and perspectives helpful.

With that, I would like to turn the call over to Mr. Luis Rojo, our President and Chief Executive Officer.

Thank you, Ruben. Good morning, and thank you all for joining us today to discuss our fourth quarter and full year 2025 results. I plan to share highlights of the performance and will also share updates on our key strategic priorities, while Ruben will provide additional details on our financial results.

2025 was a transformational year for Stepan. We divested 2 manufacturing plants, made significant progress on the foundational work required to further optimize our global footprint and position the company to execute against a more disciplined and resilient operating model in 2026 and beyond. I also want to highlight that we delivered the best year on safety results in our history. Congrats to the whole Stepan team on these excellent safety results. Despite a challenging macro environment, the continued pressure across the chemical sector, unprecedented raw material inflation and tariff impacts, we delivered full year adjusted EBITDA growth of 6%. We delivered adjusted EBITDA of $199 million reflecting, discipline in pricing and cost management, favorable mix and solid growth across all our strategic businesses. Organic volume increased 2% year-over-year driven by a strong growth in crop productivity, oilfield, Tier 2, Tier 3 customers, global polymers and specialty products. This was partially offset by softer demand in global consumer commodity surfactants.

Throughout the year, we maintained a disciplined approach to capital allocation. We generated positive free cash flow in 2025 and strengthening our balance sheet and reduced net debt. Our leverage ratio improved from 2.8 to 2.5x at the end of the year. We did all of this while continuing to invest in the business. Consistent with our long-standing commitment to shareholder returns, we increased our dividend for the 58th consecutive year, underscoring our confidence in Stepan cash flow strength and long-term outlook.

During the fourth quarter of 2025, the company paid $8.9 million in dividends to shareholders. Our Board of Directors declared a quarterly cash dividend on a Stepan common stock of $0.395 per share payable on March 13, 2026. This represents a 2.6% increase in our dividend versus the prior year. Importantly, in 2025, we demonstrated our ability to deliver earnings resilience, advance strategic priorities and take decisive actions in a difficult operating environment. We successfully commissioned our Pasadena alkoxylation facility, optimized our asset footprint through targeted divestitures and established the foundation to implement project catalyst, which we will discuss later today.

With that, I will turn the call back to Ruben to walk you through the financial details for the quarter and the year.

Thank you, Luis. My comments will generally follow the slide presentation. Let's start with Slide 5, which summarizes Q4 2025 performance. Fourth quarter 2025 adjusted net loss was $0.5 million or down $0.02 per diluted share. Reported net income was $5 million, up 49% versus prior year, primarily reflecting the gain on sale of assets and certain nonrecurring items. The decrease in adjusted earnings was mainly driven by lower Surfactants operating income, lower capitalized interest expense and less favorable effective tax rate, partially offset by improved polymers performance and lower corporate expenses. Importantly, several of these drivers, including higher depreciation and the decline in capitalized interest associated with the Pasadena startup had no cash impact compared to the fourth quarter of last year.

Consolidated adjusted EBITDA was $33.8 million compared to $35 million in the prior year, a 3% decrease. The slight decline in adjusted EBITDA was primarily driven by a 3% decrease in Surfactants organic volumes due to softer demand in global commodity consumer product end markets and elevated raw materials costs. Polymers delivered year-over-year growth, driven by a strong volume performance in North America and Asia Rigid Polyols and in global commodity phthalic anhydride. Specialty Products results were modestly year-over-year due to primarily -- due primarily to order timing within the pharmaceutical business. Cash from operations was $60 million for the quarter, and free cash flow was positive at $25 million compared to negative $0.2 million in the prior year. The improvement was driven by reductions in working capital and disciplined capital spending. We remain focused on strengthening liquidity and maintaining disciplined capital allocation.

Slide 6 shows the total company pretax income bridge for the fourth quarter of 2025 compared to last year's fourth quarter. Because this is a pretax view, the figures noted reflect operating performance before the impact of income taxes. Fourth quarter pretax income declined year-over-year, primarily driven by lower Surfactant operating income and lower capitalized interest expense. These headwinds were partially offset by improved performance in polymers and lower corporate expenses.

Slide 7 shows the total company adjusted EBITDA bridge for the fourth quarter compared to last year. Adjusted EBITDA was $33.8 million, slightly down from prior year. Surfactants decreased by $2.6 million, driven by lower organic demand and elevated raw material costs. Polymers increased by $1 million, reflecting an 11% growth and improving operating leverage. Specialty Products decreased by $0.4 million and corporate expenses declined year-over-year due to continued spending discipline and the nonrecurrence of CEO transition expenses recorded in the fourth quarter of 2024.

Slide 8 focuses on the Surfactants segment. Surfactants net sales were $402 million, up from $379 million in the prior year. Organic volume declined 3% year-over-year primarily due to weaker demand across commodity consumer and construction and industrial solutions end markets. Price and mix benefited from pass-through of higher raw material costs, improved product and customer mix and pricing actions. Foreign currency translation positively impacted net sales by 3%. Surfactants adjusted EBITDA declined slightly, reflecting lower organic volume and elevated oleochemical input costs.

Moving now to Slide 9. Polymers net sales were $132 million versus $113 million in the same quarter of last year. Volume increased 11%, driven by North America and Asia Rigid Polyols and commodity phthalic anhydride growth. Price was negatively impacted by the pass-through of lower raw material costs and competitive pressure. Foreign currency translation positively impacted net sales by 2%. Polymers adjusted EBITDA increased 9% versus the prior year, driven primarily by strong volume growth, partially offset by lower unit margins and unfavorable product and customer mix. Specialty Product net sales and EBITDA were modestly lower year-over-year due to order timing fluctuations within the pharmaceutical business, though medium chain triglycerides continue to deliver double-digit volume growth.

Let's move now to Slide 12 to review balance sheet and cash flow. Free cash flow generation remains a key focus. Cash from operations was $60 million in the fourth quarter and free cash flow totaled $25.4 million, driven by working capital reductions. We ended the fourth quarter with net debt of $494 million, a $32 million reduction versus the prior year and a net leverage ratio of approximately 2.5x trailing 12-month adjusted EBITDA. This improvement reflects our continued focus on cash generation, debt reduction and maintaining financial flexibility.

Turning to full year results. Reported net income was $46.9 million, down 7% year-over-year, while adjusted net income was $41.7 million. The decrease in 2025 adjusted net income was primarily driven by lower Surfactants operating income, lower capitalized interest expense and a higher effective tax rate. Global organic sales volume increased 2% for the full year, driven by strong growth in crop productivity, oilfield, Tier 2 and Tier 3 customers, global polymer and specialty products. This was partially offset by softer demand in global commodity consumer end markets. Full year EBITDA increased 11% to $208 million and adjusted EBITDA increased 6% to $199 million. Cash from operations in 2025 was $148 million and free cash flow was $25.4 million. Disciplined working capital management and capital spending allowed us to generate positive free cash flow while funding strategic investments in 2025.

With that, I will turn the call back to Luis to discuss our strategic outlook and project catalysts.

Thanks, Ruben. I will begin with a brief update on our strategic priorities before turning to Project Catalyst, which represent a significant step forward in strengthening the Stepan foundation for long-term superior value creation.

Our strategy remains centered on 4 key pillars: First, our continued focus on customer-centric innovation to create new applications and better solutions for our customer products and strengthening our strategic technical partnerships; second, our diversification strategy is to deliver growth in higher value end markets and expand our reach in the Tier 2 and Tier 3 customer segments; third, Operational excellence in our supply chain remains a key priority for the future, improving the reliability and resiliency of our manufacturing network and operating metric results at our Millsdale site; and fourth, we continue improving our financial position by a relentless focus on improving free cash flow generation, deleveraging the balance sheet and a disciplined and efficient capital allocation.

Throughout 2025, we saw significant growth in crop productivity, oilfield and specialty products, while polymers also delivered a strong volume growth across North America and Asia. We also grew mid-single digits in our Tier 2, Tier 3 business. We also made meaningful progress improving our reliability in Millsdale and we fully commissioned our Pasadena facility with production ramping up. This effort resulted in EBITDA growth, positive free cash flow generation and a reduction of our leverage ratio during 2025.

Let's move now to Slide 14. Today, we announced Project Catalyst, which is a comprehensive plan designed to further optimize our asset base and create a more productive, agile and accountable organization to enable growth. Project Catalyst is expected to deliver around $100 million in pretax savings over the next 2 years, with approximately 60% of the savings expected in 2026. Project Catalyst is not a short-term cost reduction program alone. It is a strategic transformation designed to enhance the competitiveness of our cost base while preserving customer service and growth flexibility.

Project Catalyst is built around 3 core value levers. First, footprint optimization by consolidating volume and improving utilization rates in our more modern and cost competitive sites. Another component of this effort is the ramp-up of our Pasadena facility, which we expect to reach around 70% to 80% utilization in 2026 and full utilization in 2027.

Second, operational efficiency and cost optimization. This includes procurement savings, productivity improvement across our manufacturing and logistic network and the deployment of an enterprise-wide management operating system that drives disciplined data-driven execution and continuous improvement.

Third, organizational effectiveness. We're clarifying accountabilities, streamlining decision-making and aligning resources more tightly to our growth priorities to accelerate the value capture across the organization and improve productivity. Importantly, Project Catalyst is designed to partially offset inflationary pressures and other headwinds while creating the capacity to reinvest in growth initiatives in innovation and supply chain resiliency.

Today, we announced the closure of our Fieldsboro, New Jersey site. This is in response to continued lower demand in commodity surfactants used in the production of laundry detergents. In addition, we are decommissioning select assets at our Millsdale and Stalybridge sites. We're planning to execute these actions in the next few months. I want to acknowledge that the decisions we're making are difficult, especially as they impact people and communities that have been part of a Stepan story for many years. We deeply appreciate the dedication and hard work of our teams at these locations.

We will continue to evaluate additional opportunities to further optimize our footprint and strengthen our competitive position while unlocking the potential of our existing sites. This is a dynamic environment, and we will adjust and make changes if necessary. As we look forward to 2026, we remain focused on delivering superior shareholder returns with a balanced approach between top line growth and productivity cost-out efforts. We believe we are well positioned to deliver adjusted EBITDA growth and positive cash -- free cash flow in 2026 despite the ongoing market challenges.

This concludes our prepared remarks. At this time, we would like to turn the call over for questions. Didi, please review the instructions for the questions portion of today's call.

[Operator Instructions] And our first question comes from Mike Harrison of Seaport Research Partners.

Wanted to start out with a couple of questions on Project Catalyst. I understand a lot of this consolidation has been a long time coming. But can you give us a sense of what capacity utilization looks like within the Surfactants business today? And following the optimization actions that you've enumerated here in Fieldsboro and the other 2 facilities, where -- what would that do for capacity utilization going forward in Surfactants? And I guess I was looking to understand, are the facilities that you're closing or the assets that you're closing, are they losing money on an operating income or EBITDA basis in 2025? Or were they still providing some kind of a positive earnings contribution?

Great questions, Mike. Look, of course, Surfactants have different platforms and different chemistries. What I will say is with the consolidation that we're doing, we're trying to optimize our cost structure. We're moving volume to less cost-effective sites to more modern and cost-efficient sites. And we still have certain capacity for growth. And of course, if you think about alkoxylation, we are still capacity for growth. AOS and even in ether sulfate and low 1,4-dioxane, we have capacity to grow in the future, but we know where the market is going, and that's why we took the decisions that we're making. It's not like we are losing money in those sites. The point is that we're moving the volume to other sites to improve the utilization rate in those sites and continue serving our customers at a more efficient cost structure.

All right. And then in terms of the $100 million worth of savings and just the timing. You mentioned $60 million is expected in 2026. But I wanted to understand also that you've noted that these savings are intended to help cover inflation that you might be seeing. And I was just hoping you could help us understand how we might think about the net savings that $60 million minus whatever inflation you're anticipating during this year.

Good point, Mike, because, yes, we believe we're going to deliver at least the $60 million pretax in 2026. But as you know, it's public information that we have around $750 million in fixed cost when you think about salaries and maintenance and all of that. And of course, inflation is still there, right? I mean you could argue that the inflation of 3% is still there. In some cases, the inflation is even higher when you think about health care, when you think about insurance, when you think about incentive-based compensation. So call it, you have a 3-plus inflation rate in our cost structure. And that, of course, is going to eat up some of the savings that we will deliver for sure in 2026.

All right. You had talked a little bit about oleochemicals creating some raw material pressure. I was wondering, did the impact of oleochemicals get worse in Q4 than it was in Q3? And should it get better as we get into Q1, given that it looks like the market prices of some of those oleochemicals have come lower? Maybe just help us understand a little bit more what's going on with the timing of those costs and also the timing of your pricing actions or any kind of index pass-through response that might be happening?

No. Yes. This is, of course, very relevant to our EBITDA margins in the Surfactants business. If you look at the Surfactant business, in Q1 2025, we still had a double-digit EBITDA margin, and that's when we saw the start of the escalation of oleochemicals. And there is a lag, right? I mean we typically carry a lot of inventory because it's from Asia and all that supply chain is pretty long. So you saw coconut oil prices going from the $2,000 to $3,000 per metric ton. And really, really, I mean, you felt all that impact in the P&L in the second half of 2025.

Coconut oil prices are coming down significantly now. And actually, PKO is going up, which at the end is narrowing the gap, which at the end, the important piece is the gap between CNO and PKO. And the reality is that if you look at where we are now, January, February, that spread between CNO and PKO is almost at a normal level, right, $200 difference. You have CNO at $2,200, you have PKO at $2,000. And that $200 delta is historically has been in the $130 to $150. So we are getting to a point where we feel very, very good. However, again, last year, we saw the impact in the second half, the hurt of higher oleochemicals in the second half. You are going to see the help in 2026 in the second half of 2026. We carry a lot of inventory. This is a very long supply chain. And as we -- I mean, we keep increasing prices, and you have seen this in our price/mix numbers. But at the end, we will recover those margins at the end of 2026, more in the second half than in the first half. In the first half, you are going to still see the impact of lower margins in Surfactants.

All right. And then my last question for now is just a little bit about the timing of earnings. I understand you've given a '26 outlook that calls for EBITDA growth. Would love it if you could help us understand maybe some ranges or ideas of how much growth we could anticipate. But it sounds like between the oleochemical impact and maybe the savings starting to accelerate as the year goes on, it sounds like the second half could be quite a bit better than the first half. And I know this is adding an extra question, but I also assume there's maybe some weather impact that could drag on your first quarter. So maybe just a little bit of color on how we should think about the cadence of earnings and how much growth is anticipated next year in '26?

Good questions, Mike. And so let me think about this. So we are committed and we feel good, and that's why we had it in our prepared remarks that we expect EBITDA growth in 2026 versus 2025. You are 100% correct that when you think about -- so think about these 4, 5 big factors that are helping the second half and not helping the first half. So we already talked about the oleochemical raw material situation, right? It's going to be significantly better in the second half versus the first half.

Catalyst savings, we are committing to the $60 million pretax. And of course, those are going to be heavily skewed to the second half. I mean, procurement savings and some of those things are throughout the year. But when you think about footprint and the other stuff, it's mostly second half. We are also expecting demand recovery in the second half versus the first half when you think about 2 interest rate cuts, right? That's very important. I mean all the banks are -- and everybody is projecting at least 2 interest rate cuts throughout the year, especially in the second half. So we expect demand to improve in the second half versus the first half. This is important for our construction business, both in polymers and a little bit also in Surfactants.

So when you think about all of those effects and the fact that we started Q1 with a historic weather impact, right? Nobody was expecting this winter. I'm telling you that we are pleased, we are extremely pleased with the supply chain that we have and we did extremely well compared to many other winters, but it is true that some demand was lost. When you think about the polymers business and construction activities and reroofing, when you think about how this impacts some of our Surfactant business, there was some demand lost, and there is also absorption, right, because we didn't produce everything that we intended to produce in Q1.

So there is an impact of around $6 million in Q1 2026 on an EBITDA basis due to the weather. But the good news is that we're expecting to recover at least half, hopefully more than half, but at least half of that between Q2 and Q4. When you think about the absorption piece and some of the demand loss, we expect to recover at least half of more in the following quarter. So yes, Q1 is a tough quarter to start. I think many chemical companies saw that impact, and it was a historic weather in the U.S. But the good news is that we did extremely well, and we are well positioned to recapture some of that EBITDA that we lost in Q1.

Our next question comes from Dave Storms of Stonegate.

I just wanted to maybe circle back -- I wanted to circle back to Project Catalyst. Just curious as to what your anticipated impacts on that project are to Tier 2 and 3 customers. Is this going to make it easier for them to engage everyone there? Or is this going to be maybe a little more challenging for them since there's going to be less areas for them to go to interact with you guys?

No. Look, thanks, Dave, for the question. And look, the Project Catalyst have 3 levers, right? The first 2 levers are heavily focused on supply chain and footprint. But the third lever is very, very important, which is we are working on a more agile, accountable and productive organization that is going to accelerate the growth of the company in the future, right? So we are working those details right now. We are going to announce more things in the future. But what we are planning to do with the new organizational structure and with all the investments that we're doing on automation and system is to actually facilitate the growth with Tier 2, Tier 3.

We are very happy with the growth that we're having in this segment. We did mid-single digits in 2025, and I'm expecting this to grow even higher in 2026 as we facilitate to them doing business with us. So there are plenty of investments that we're making on automation, systems and tools to make sure that we capture an even bigger share of the pie of the Tier 2, Tier 3 segment. So I think Project Catalyst is just great news for our Tier 2, Tier 3 customer segment.

Understood. And then if I could ask a clarification question. It sounded like the answer around demand loss in the first quarter due to the weather, it sounded like that was mostly based on polymer demand lost in the polymer segment. Are you seeing any demand loss in ag? I know Q1 tends to be a big ag quarter for you. Just curious as to what you're seeing given the weather that we've had in the U.S. this year.

No, great point. Let me clarify. Out of the $6 million that I mentioned, the majority of that is Surfactants. That's where we saw the biggest impact. and polymers, even though it's a low season, Q1 is a low season on reroofing. Still, we saw a lot of delays from our customers because of the weather. So at the end, the $6 million is more surfactants than polymers, but it's not in ag. I mean ag continues growing very nicely. We're very happy with our ag business. We're very happy with our oilfield business. We're very happy with our Tier 2, Tier 3 business. So we keep growing in all our strategic areas, and we will continue managing our commodity surfactants business to make sure that it's more productive and cost effective.

Understood. That's very helpful. One more, if I could. Just around your inventories. I know you mentioned that there tends to be a little bit of a lag there. I also know in the past, as the raw materials prices tend to increase, your inventory levels have increased as well. I noticed your inventory levels were actually down quarter-over-quarter. Is this you kind of learned your lessons from past inventory runoffs? Or is this just the lag that we should expect?

No. Look, I would say this is the normal lag of Q4. But the reality is that, of course, we are extremely focused on free cash flow. We will continue managing our working capital to ensure that we have what we need and no more. So free cash flow continues to be a key priority. We deleveraged the balance sheet and our leverage ratio went down to 2.5 because that's a key focus in the company. And having the right inventory levels is a priority for all of us.

And again, but in some of those cases, as I mentioned, I mean, when you have a supply chain from Asia, including all the way to copper and oil, all the way to produce methyl esters, all the way to bring those to the U.S. is a very long supply chain. And of course, those have an impact when you think about the raw material situation that we have. But at the end, we feel good with our inventory levels, and we will keep optimizing our inventory levels as we streamline our footprint asset base.

And our next question comes from David Silver of Freedom Capital Markets.

I just -- I have a bit of a scatter of questions, so I'm sorry to be a little disjointed. Regarding Project Catalyst, you did go to some detail as to what production would be reduced from the actions at Fieldsboro. I was wondering if you might be able to do the same for Millsdale and for your U.K. facility. In other words, are all of the facilities affected? Are they all in the commodity surfactant area? Or might there be some other areas affected? And should we assume that all of the activities will mainly affect Surfactants segment as opposed to polymers or specialty products?

Great point, David, welcome you back. And look, all is in Surfactants, we were -- you will see in the press release a little bit more details. It's about the alkoxylation assets in Millsdale and of course, we have great capacity and modern and state-of-the-art facility in Pasadena. So we want to make sure that we produce those products at the most cost-effective way, and that brings Pasadena. And in the case of Stalybridge, it's also surfactants, of course, it's a surfactant site, but it's more a commodity, low margin, high CapEx organics business that we're exiting. This is a business that doesn't produce the return that we deserve, and we are exiting that business. So it's all surfactants and is to make sure that we improve the profitability and the return and the ROIC of the company.

Okay. Great. I wanted to ask a question about your CapEx guidance for 2026. So at a range of $105 million to $115 million, that is -- would be your lowest spend in several years, although if you go back a ways, it was a little bit lower. Should we think of the 2026 CapEx as your new base level for sustaining CapEx? Or might there be a certain amount of discretionary or growth-oriented CapEx? And if there is, could you just highlight the areas where you still feel discretionary CapEx is warranted in the current environment?

No. Good point, David. And you saw before COVID and all of that, we were running in the, call it, $100 million range for our normal CapEx. Now of course, we have a few new sites, right? We acquired 2 sites with INVISTA and we have Pasadena. But look, the $110 million, let's take the midpoint, the $110 million reflects very -- I mean, some small but good growth capital projects and then our normal base CapEx for infrastructure, EH&S, IT, R&D and all of those buckets. So what I will say is you can call it less than $100 million for the normal base CapEx and then some growth CapEx on top. It's not significant, but it's still giving us the opportunity to move forward with the projects and the innovation plan that we have for the next few years.

Okay. Great. I had a question on the demand side, and maybe this relates more to North America and Europe, but maybe not. But amongst some other personal care ingredients producers that I track, there's been a lot of commentary about the stretched consumer middle income or thereabouts in the customer demographic. And there's been a lot of talk for a while, but even recently about consumers trading down, right, in their choice of personal care, let's say, personal care products. Would you say -- would you maybe say that, that's been part of your view here and now? And how are you kind of adapting to that somewhat evolving demand profile maybe to reflect a stretched kind of middle income consumer for personal care?

Yes. No, very good points, David. And I think you are asking about personal care. I mean, if you think about it, I mean, you have 2 things, personal care and then you have all the cleaning piece. But on the personal care, what I will say is that's why our huge focus on Tier 2, Tier 3, right, and our huge focus on sulfate free. When you think about personal care, you are rightly so that those are the dynamics, right? I mean you have consumers trading down, not only on personal care, but on overall cleaning and disinfection and laundry and all of that. So our focus of Tier 2, Tier 3 on sulfate free for personal care is the right focus to continue growing where the consumer is going, right? That's where the consumer is growing, and that's where we are investing, and that's where we're putting our focus.

Okay. Great. And then maybe just the last question. And this would have to do with kind of the global evolving kind of tariff situation. And I guess it's difficult to ask the question in the current environment because there's just been another announcement over the past couple of days. But I'm thinking more of your global footprint and in particular, Mexico. And I'm just wondering if the current status of how the U.S. is deploying their tariffs. I mean, has that had a negative impact on the ability of your assets to competitive -- to compete, let's say, for business in the U.S.? Or how would you assess Stepan's overall positioning in the current tariff environment?

Look, tariff will continue to change. And you know better than me that this is an evolving thing. We are focusing on what we control. We have a great supply chain with a lot of options, and we will continue optimizing those options, right? The reality is that we had a nice -- I mean, we had a big impact -- not a big compared to our overall raw material prices, but we had an impact in 2025, and that's why I put it in my remarks, right? I mean, inflationary pressures in raw material and tariff, we were not expecting that when we started 2025. And the reality is that all those millions of dollars add up.

And we'll see where the new policy goes. I mean we have production in the majority of the regions where we source and where we serve our customers. So that gives us an advantage that we are very close to our customers, and that's the strategy. But of course, we need to continue evaluating every supply chain based on where these dynamics goes. But again, we expect 2026 to be as volatile as 2025 in regards to tariff, and we will look for every opportunity that we have in that front, including refunds of the previous tariffs that we paid.

This concludes our question-and-answer session. I would like to turn it back to Luis Rojo for closing remarks.

So thank you so much for joining us today. Have a nice and safe day. Thank you.

This concludes today's conference call. Thank you for participating, and you may now disconnect.

Good morning, and welcome to the Stepan Company Third Quarter 2025 Earnings Conference Call. [Operator Instructions] As a reminder, this call is being recorded on Wednesday, October 29, 2025. It is now my pleasure to turn the call over to Mr. Ruben Velasquez, Vice President and Chief Financial Officer of Stepan Company. Mr. Velasquez, please go ahead.

Thanks, Jecita. Good morning, and thank you for joining Stepan Company Third Quarter 2025 Financial Review. Before we begin, please note that information in this conference call contains forward-looking statements, which are not historical facts.

These statements involve risks and uncertainties that could cause actual results to differ materially, including, but not limited to, prospects for our foreign operations, global and regional economic conditions and factors detailed in our Securities and Exchange Commission filings. In addition, this conference call will include discussions of adjusted net income, adjusted EBITDA and free cash flow, which are non-GAAP measures.

We provide reconciliations to the comparable GAAP measures in the earnings presentation and press release, which we have made available at www.stepan.com under the Investors section of our website.

Whether you are joining us online or over the phone, we encourage you to review the investor slide presentation. We make these slides available at approximately the same time as when the earnings release is issued, and we hope that you find the information and perspectives helpful. With that, I would like to turn the call over to Mr. Luis Rojo, our President and Chief Executive Officer.

Thank you, Ruben. Good morning, and thank you all for joining us today to discuss our third quarter 2025 results. I plan to share highlights of the quarterly performance and we will also share updates on our key strategic priorities, while Ruben will provide additional details on our financial results.

We delivered 9% adjusted EBITDA growth through the first 9 months of 2025, bringing year-to-date adjusted EBITDA to $165 million.

These results were restrained by the significant increase in oleochemical raw material prices, which continues to impact Surfactant margins and by higher start-up costs related to our new Pasadena, Texas facility.

We remain focused on gradually recovering our margins and keeping a healthy balance between volumes and margins. Third quarter adjusted EBITDA was $56 million, up 6% year-on-year.

Specialty Products adjusted EBITDA increased significantly, driven by favorable order timing within the pharmaceutical business.

Polymers delivered volume growth across rigid polyols and commodity PA, while EBITDA was slightly lower due to unfavorable mix and margin pressures.

Surfactant adjusted EBITDA declined versus the prior year, driven by higher Pasadena start-up costs, oleochemical raw material cost inflation and lower demand within our global commodity consumer products end market.

Total company sales volumes grew 1%, with Polymers up 8% and our NCT product line up 26%, while Surfactants volume declined 2%. In Surfactants, we continue to experience double-digit volume growth within the crop productivity business and mid-single-digit growth in the oilfield end market.

This growth was offset by lower demand within the global commodity consumer products end market. North America Rigid Polyol and commodity PA volumes were both up double digits, while European Rigid Polyol volumes continue to be impacted by macroeconomic uncertainties and low construction activity.

Despite a very challenging environment for the chemical sector, we remain encouraged by the volume growth across several of our key strategic end markets.

We finished the third quarter of 2025 with $10.9 million of adjusted net income, down 54% versus the prior year, largely reflecting a higher effective tax rate, higher interest net and higher depreciation, none of which had cash impact.

Free cash flow was positive at $40 million during the quarter, driven by reduced working capital and disciplined capital spending. During the third quarter of 2025, the company paid $8.7 million in dividends to shareholders.

Our Board of Directors declared a quarterly cash dividend on Stepan common stock of $0.395 per share, payable on December 15, 2025. This represents a 2.6% increase in our dividend. Stepan has paid and increased its dividend for 58 consecutive years. Ruben will now share some details about our third quarter results.

Thank you, Luis. My comments will generally follow the slide presentation. Let's start with Slide 4 to recap the quarter. Third quarter 2025 adjusted net income was $10.9 million or $0.48 per diluted share versus $23.7 million or $1.03 per diluted share for the third quarter of last year, a 54% decrease.

The decrease was primarily driven by a higher effective tax rate resulting from the recently enacted U.S. tax law, lower capitalized interest income and higher depreciation due to Pasadena plant start-up.

These 3 net income unfavorable drivers had no cash impact. Consolidated adjusted EBITDA increased by $3.1 million or 6% compared to prior year.

This growth is attributable to strong specialty product results and the non-recurrence of expenses associated with the external criminal social engineering fraud event in 2024.

Significantly higher oleochemical raw material costs continued to impact surfactant margins, coupled with softer demand in global commodity consumer product end markets. Earnings growth was also impacted by higher start-up expenses at our new alkoxylation facility in Pasadena, Texas. Cash from operations was $69.8 million for the quarter and free cash flow was positive at $40.2 million, driven by reductions in working capital.

We will continue prioritizing free cash flow generation going forward. Slide #5 shows the total company net income bridge for the third quarter of 2025 compared to last year's third quarter and breaks down the decrease in adjusted net income.

Because this is net income, the figures noted are on an after-tax basis. We will cover each segment in more detail, but to summarize, we delivered operating income growth in Specialty Products, fully offset by lower operating results in Surfactants and Polymers.

The third quarter results were impacted by a higher effective tax rate. The company's effective tax rate was 23.8% in the first 9 months of 2025 versus 18.9% in the first 9 months of 2024.

This increase was primarily associated with the recently enacted U.S. tax law. We are forecasting that our returning -- we are forecasting returning to our normal effective tax rate range of 24% to 26%. Slide 6 shows the total company adjusted EBITDA bridge for the third quarter compared to last year's third quarter.

Adjusted EBITDA was $56.2 million versus $53.1 million in the prior year, a 6% increase. We delivered adjusted EBITDA growth in Specialty Products, partially offset by lower earnings in Surfactants and Polymers.

Adjusted EBITDA results also benefited from lower corporate expenses compared to previous year. Slide 7 focuses on the Surfactant segment results.

Surfactants net sales were $422.4 million for the quarter, a 10% increase versus the prior year. Improved product and customer mix and the pass-through of higher raw material costs contributed an 11% to sales growth.

Sales volume declined 2% year-over-year due to lower demand within the global commodity consumer product end markets, mainly offset by double-digit growth within the agricultural segment and a strong growth in oilfield.

Net sales benefited 1% from foreign currency translation. Surfactants adjusted EBITDA decreased $6.2 million or 14% versus the prior year.

This decrease was driven by the 2% contraction in volume, higher Pasadena site start-up expenses and the significant rise in oleochemical raw material prices.

This was partially offset by improved product and customer mix. Moving to Slide 8, Polymers net sales were $143.9 million for the quarter, a 4% decrease versus the prior year.

Selling prices decreased 14%, primarily due to the pass-through of lower raw material costs and competitive pressures. Sales volume increased 8% in the quarter.

North America Rigid Polyol volume grew double digits and our commodity Phthalic Anhydride business continued to deliver strong growth.

Global Specialty Polyols volume grew mid-single digits despite the continued challenging overall environment.

European and China Rigid Polyols volume was impacted by softer demand across their respective regional end markets.

Foreign currency translation had a positive impact of 2% on net sales during the quarter. Polymer adjusted EBITDA decreased $1 million or 4% versus the prior year, primarily due to lower unit margins and unfavorable mix, which was partially offset by the 8% volume growth.

Finally, Specialty Product net sales were $24 million for the quarter, a 68% increase versus the prior year, primarily due to higher sales volume. Specialty Products adjusted EBITDA increased $5.9 million or 113%. The increase in adjusted EBITDA was primarily due to order timing fluctuations within the Pharmaceutical business as orders was moved from the second to the third quarter of the year. Next, on Slide 9, free cash flow was positive at $40.2 million for the third quarter, up $44.2 million year-over-year, driven by working capital reductions and disciplined capital spending.

We remain optimistic about our ability to deliver positive free cash flow for the full year 2025. During the third quarter, we deployed $29.6 million against capital investments and $8.7 million for dividends. Now on Slide 10 and 11, Luis will update you on our strategic priorities and capital investments.

Thank you, Ruben. I will focus my comments on our strategic priorities. Our customer will always remain at the center of our strategy and innovation efforts.

Our Tier 1 customer base remains a solid foundation of our business. Continuing our new customer acquisition within Tier 2 and Tier 3 customers remains a key priority. This is an important and profitable growth channel within our Surfactant business. For the third quarter of 2025, our volume grew low single digits year-over-year, and we added over 350 new customers.

Our end market diversification strategy remains a key focus area. For the third quarter, we continue to see a strong growth in our crop productivity and oilfield businesses. We are pleased to see our North America Rigid Polyol business continue to deliver year-over-year growth.

This growth was enhanced by our new product introduction in the growing spray-foam end market. Our supply chain operation and resiliency continue to improve, and we delivered another solid quarter in all our key operational metrics.

Thanks, Rob, we continue making investments in our Millville site to improve operational reliability. Moving to Slide 11, we are proud our new Pasadena site is fully operational and is currently ramping up production.

We have made 41 different products to date. We expect that the full contribution rate of the plant will be achieved in 2026. Our commercial team continues to develop and deliver new business opportunities and specialty alkoxylation volumes continue to grow double digits in the third quarter.

Looking forward, we remain focused on accelerating our business strategies through enhanced operational excellence, improved product and customer mix and accelerated free cash flow generation. We believe our Surfactant business will experience continued growth in our key strategic end markets, and that polymers demand will continue improving as we get more market certainty and we execute our innovation and growth plans.

Our Pasadena facility is operational, and this should enable us to deliver volume growth in our alkoxylation product line and supply chain savings going forward.

We remain on track to close the sale of our site in the Philippines in the fourth quarter of 2025, and we are analyzing opportunities to optimize our global footprint and asset base. Despite the ongoing current market and tariff uncertainties, which change every day, we remain optimistic that we will deliver full year adjusted EBITDA growth and positive free cash flow in 2025. This concludes our prepared remarks. At this point, we would like to turn the call over for questions. Jecita, please review the instructions for the questions portions of today's call.

[Operator Instructions] Our first question comes from Mike Harrison at Seaport Research Partners.

I was hoping we could start out with a couple of questions on surfactants. First of all, where are we right now in the process of recovering the oleochemicals cost run-up in surfactants? Do you expect that, that impact could be fully offset by Q4? Or could it take a little bit longer to recover?

Good question, Mike. So let me start with some background information here. So as you all know, you can track this, it's public information: coconut oil prices. If you think about the first 9 months of 2025, the average is $2,500 per metric ton, that's a 7-0 percent increase versus 2024. So 2024 average was $1,500. We are at $2,500.

The peak was $3,000 as we talked last quarter. The prices are coming down. That's the good news. Prices are coming down from the peak of $3,000 per metric ton. So we have recovered a lot of the 70% increase, but we are still catching up.

We had another price increase in North America in October 1. And that's the objective. The objective is 2026, we have -- we will recover the margins that we saw on coconut oil prices, which again were significant and the prices are still -- are now coming down, which is the good news.

Just to follow up on that, if we are seeing some of that raw material costs come lower, I guess, does that make it more challenging for you to get the pricing you need? And does that mean that at some point, we could see you give some pricing back if that trend continues?

No. Look, one thing that I was very clear on my prepared remarks was that we will continue driving the right balance between volumes and margins. This is an asset-intensive business. We need volume through our reactors. We will not lose share. We will be competitive in the market.

We will be competitive in the market and balance volumes and margins to maximize net income to maximize return for the company. And again, that's the balance that the team is delivering. I'm pleased with what they have done in the last few months, and we need to continue that effort in the future months, continue managing that balance between volumes and margins.

All right. So that kind of leads into my next question, which is just about the overall margin performance of the Surfactants business. Obviously, still a lot of moving pieces with the Pasadena facility starting up, and we're probably not yet seeing the full benefit of bringing some of that alkoxylate production in-house.

But do you have longer-term goals for where the Surfactants segment margin could reach over time? Historically, operating margin in that segment got into the double digits, and it was pretty consistently there for a few years. And I'm just wondering if that type of double-digit operating margin could be achievable as we look out 2 or 3 years?

Great question, Mike, and that's, of course, our belief as well. Look, EBITDA margins are restrained. I mean, call it, close to 10% now because all the investments in Pasadena and still the impact on oleochemicals, but we believe this business as we continue growing in our functional markets, agrochemical, oilfield, construction and industrial solutions, as we continue growing in Tier 2, Tier 3, we believe this is a healthy double-digit EBITDA margin business going forward.

And of course, we have made investments. We have made investments and everybody knows that. So on an operating income, with all the depreciation of Pasadena of low 14%, people can see that in the numbers. But on an EBITDA basis, this business will continue performing at a decent margin level, and that's what we are focusing on, growing our high EBITDA margin businesses, as we continue growing those.

All right. And then over on the Polymers business, just a couple of questions here. First of all, do you believe that there is pent-up demand in the commercial roofing and commercial insulation space? And I'm curious, do you think that lower interest rates could help to stimulate some additional activity there?

[ Fully aligned ] Mike. There is -- we believe there is a lot of pent-up demand from all the construction that happened in the early 2000. I mean if you look at all the construction that happens in industrial construction, warehousing, plants, flat roofs in early 2000, which was a huge peak a lot of those buildings need renovation in the next 5 years.

We're aligned 100% with the belief from some of our customers that all that reroofing needs to happen. It's not going to happen overnight, but it needs to happen and PIR insulation is the preferred choice for all those flat roof projects coming up.

And you are 100% right that, I mean, we should see another interest rate reduction today, 98% probabilities now of an interest rate reduction in December Fed meeting.

So we believe 2026 will give us some upside on the construction activity if the interest rate continues the way they are and inflation rates continues the way they are, right? I mean we need shelter and rental inflation to keep coming down so we can achieve -- so the Fed can achieve their 2% inflation target.

All right. And just to follow up on Polymers. From the margin side, I believe you mentioned that unit margins are down, the pricing was down quite a bit. You referred to some competitive dynamics that are challenging. Is your expectation that if we started to see some recovery in demand that we would also see some recovery in unit margins as well?

Look, I mean, we're happy -- look, we always can improve our margins, right? But if you look at the first 9 months of the Polymers business, we were able to grow EBITDA modestly, very little, but modestly, we were able to grow despite sales down. So EBITDA margins are improving slightly in the Polymers business despite everything that is going on in Europe and especially in Europe, which is a very tough situation.

So we believe we want to grow the top line. We want to grow the volumes, and we need to keep inching up the margins as we drive scale. I mean, the benefit of higher volumes and scale should improve our margins, but we are not planning a significant increase. But we're happy with the margins that we have, and we need to continue inching those up as we grow our business. And we had a negative impact on margin as we grow PA and as we grow in some of the other markets because those are typically a mix impact to the overall Polymers business.

All right. And then my last question is, you mentioned the Philippines asset sale, and it sounds like maybe you're contemplating some other actions to help optimize your footprint. Can you give us any sense of what those actions might involve? Are they other just one-off smaller facilities? Or could there be some larger pieces of business that you might be targeting for divestment over time?

Great question, Mike. And look, we are committed to deliver a balanced EBITDA and net income growth going forward between productivity and asset rationalization and top line growth, right? The industry needs both. You have seen a lot of announcements from other companies in the past 6 to 12 months. We have made the announcement on the Philippines. We will make more announcements in the future. We need a balanced approach between top line growth, productivity and asset rationalization.

We all know the chemical industry is overcapacity, and we need to -- and we all need to make decisions on that overcapacity. And we will make those announcements whenever we are ready to make those.

Our next question comes from Dave Storms at Stonegate.

I wanted to start, you mentioned on the call, spray foam has really been a nice driver for you in the Poly section. Could we -- I guess my question is, how much more room for growth do you think there is there? And could we maybe see a second wave of growth if the European environment improves?

Great question, Dave. Look, we have talked about spray foam in the past few quarters. We're serious about this end market. We have developed great technologies and products to serve the high-growth margin, and we started this year. So I'm pleased with what the team has delivered and with the benefits that we are starting to get.

This is very early. And it's a good market. It's a good market that has a lot of potential to grow not only in the U.S., eventually in Europe in the future. But we are happy with our participation, and we need to grow more share. We are starting. We are starting from almost 0 share, and we are committed to continue investing and developing this business. And when you think about Europe, of course, we had higher expectations of our European region to start growing more on the construction activity.

And when you think about the war in Ukraine and all of those things, the reality is that construction activities are very muted still in the European region. Now as interest rates come down, as they keep focusing on energy conservation, which is a huge issue in Europe and the biggest opportunity is to consume -- is to reduce the consumption of energies in the buildings. So we believe the market trends are there for the future. It's not going to happen in the short term for sure. But we believe this is a good industry for the next 3 and 5 years, and we are committed to continue investing and to continue growing our European Polymers business.

That's great commentary. Switching to the Surfactants segment. Just would love to ask about maybe the end user there and what you're seeing from a demand perspective. It was noted that you're seeing lower demand in the laundry and cleaning end markets. Is this maybe early indications of a substitution effect? Or maybe is this more onetime in nature? Any commentary there would be great.

No, great point, Dave. And of course, we continue seeing a lot of changes in the consumer piece in terms of active levels, switching down to lower active products. So this continues to be an evolving situation. But at the end, we believe going forward, again, I mean, you need certain levels for the products to work, right? And at the end, those active levels are getting, I mean, up to the point where you cannot go significantly lower. So we feel good about the cleaning and the laundry business going forward.

There is going to be always a mix between high active, low active products, consumer brands versus private label brands. But we believe we are in a decent spot now thinking about 2026 and 2027.

Understood. And then one more, if I could, Specialty has shown 2 quarters of strong year-over-year improvements. It seems like a lot of this is predicated on volume growth. Would just love to hear your comments about how sustainable you think these potentially new volume levels are.

Look, we are extremely pleased with the performance of our Specialty Products business. Kudos to Jamil and the Maywood team for everything that they have done over the last few quarters, excellent performance. We still have opportunities to grow. We love our MCT product line. As we said in the remarks, 26% volume growth, and we are extremely happy with this business and with the performance. And it's a high-margin business.

So we will continue investing. We will continue investing to make sure that we maximize the return that we can get. It's a small part of the company in terms of revenue, but it's a huge part of the company in terms of operating income and EBITDA, and we're extremely happy with what the team has done, and we'll keep working on ideas for the next 3 years.

This concludes the question-and-answer session. I would now like to turn it back to Mr. Rojo for closing remarks.

Thank you very much for joining us on today's call. We appreciate your interest and ownership in Stepan Company. Have a great day.

Thank you very much for joining us on today's call. We appreciate your interest and ownership in Stepan Company. Have a great day.