Good morning, and welcome to the Stepan Company Fourth Quarter and Full Year 2025 Earnings Conference Call. During the presentation, we will conduct a question and answer session. You will then hear an automated message advising your hand is raised. To withdraw your question, please press 11 again. As a reminder, this call is being recorded on Monday, 02/23/2026. It is now my pleasure to turn the call over to 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 presentations 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 Luis E. 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 two manufacturing plants, made significant progress on the foundational work required to further optimize our global footprint, and positioned 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…

Thank you, Luis. My comments will generally follow the slide presentation. Let us start with slide five, which summarizes Q4 2025 performance. Fourth quarter 2025 adjusted net loss was $500,000, 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 a 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 declining 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 strong volume performance in North America and Asia rigid polyols and in global commodity phthalic anhydride. Specialty Products results were modestly lower year over year, 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 $200,000 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 six shows the total company pretax income bridge for the 2025 fourth quarter compared to last year. Because this is a pretax view, the figures noted reflect operating performance before the impact of income taxes. Fourth…

Thanks, Ruben. I will begin with a brief update on our strategic priorities before turning to Project Catalyst, which represents a significant step forward in strengthening the Stepan foundation for long-term superior value creation. Our strategy remains centered on four 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 two and tier three 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 strong volume growth across North America and Asia. We also grew mid single digits in our tier two and tier three business. We also made meaningful progress in growing our reliability in Millsdale. 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 us 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 two years, with approximately 60% of the savings expected in 2026. Project Catalyst is not a short-term…

Thank you. As a reminder, to ask a question, please press 11 on your telephone and wait for your name to be announced. To withdraw your question, please press 11 again. Our first question comes from Michael Joseph Harrison of Seaport Research Partners.

Hi. Good morning. Good morning. I wanted to start out with a couple 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 have enumerated here in Fieldsboro and the other two facilities, what would that do for capacity utilization going forward in Surfactants? And I guess I was looking to understand, the facilities that you are closing or the assets that you are 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 are doing, we are trying to optimize our cost structure. We are moving volume to, you know, less cost-effective sites to more modern and cost-efficient sites, and we still have a certain capacity for growth. And, of course, if you think about our calculation, we still have capacity for growth. AOS, and even in ether sulfates and lauryl alcohol ethoxylates we have capacity to grow in the future, but we know where the market is going, and that is why we took the decisions that we are making. It is not like we are losing money in those sites. The point is that we are moving the volume to other sites to improve the utilization rate in those sites and continue serving our customer at a more efficient cost structure.

Alright. 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 have 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, you know, that $60 million minus whatever inflation you are anticipating during this year?

No. Good point, Mike, because, yes, we believe we are going to deliver at least the $60 million pretax in 2026. But as you know, it is public information that we have around $750 million in fixed costs when you think about, you know, 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 three-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.

Alright. 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 is 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. Yeah. This is, of course, very relevant to our EBITDA margins in the Surfactants business. If you look at the business in Q1 2025, we still had a double-digit EBITDA margin, and that is 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 is from Asia, and all that supply chain is pretty long. So while you saw, you know, 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 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, you know, 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, you know, the hurt of higher oleochemical in the second half. You are going to see the help in 2026 in the second half. 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.

Alright. And then, my last question for now is just a little bit about the timing of earnings. I understand you have given a 2026 outlook that calls for EBITDA growth. Would love it if you could help us understand, you know, 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 should be quite a bit better than the first half. And I know this is adding an extra question, but I also assume there is 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 2026. Thank you.

Good questions, Mike. And so let me think about this. We are committed, and we feel good—that is 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 four, five 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 is 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 is mostly second half. We are also expecting demand recovery in the second half versus the first half when you think about, you know, two interest rate cuts. Right? That is very important. I mean, if all the banks and everybody is projecting at least two 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 am 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 re-roofing, when you think about how this impacts some of our Surfactants business, there was some demand loss and there is also absorption, right, because we did not 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 are 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 or 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 winter 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.

Alright. Very helpful. Thanks very much.

Thank you, Mike.

Thank you. Our next question comes from David Joseph Storms of Stonegate. Your line is open.

Good morning, and thank you for taking my questions. I just want to maybe circle back. Morning. I want to circle back to Project Catalyst. Just curious as to what your anticipated impacts on that project are to tier two and three 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 are going to be fewer areas for them to go to to interact with you?

No. Look. Thanks, Dave, for the question. And look, Project Catalyst has three levers. Right? The first two 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 are doing on automation and systems is to actually facilitate the growth with tier two and tier three. We are very happy with the growth that we are having in this segment. We did mid single digits in 2025, and I am 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 are making on automation, systems, and tools to make sure that we capture an even bigger share of the pie of the tier two and tier three segment. So I think Project Catalyst is just great news for our tier two and tier three customer segment.

Understood. And then if I could ask a question. It sounded like the answer around demand loss in the first quarter due to the weather sounded like that was mostly based on polymer demand loss, 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 are seeing given the weather that we have had in the U.S. this year.

No. Great point. Great point. Let me clarify. Out of the $6 million that I mentioned, the majority of that is Surfactants. That is where we saw the biggest impact. And Polymers, even though it is a low season—you know, Q1 is a low season on re-roofing—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 is not in ag. I mean, ag continues growing very nicely. We are very happy with our ag business. We are very happy with our oilfield business. We are very happy with our tier two and tier three business. So we keep growing in all our strategic areas, and we will continue managing our commodity Surfactants business to make sure that it is more productive and cost-effective.

Understood. That is 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. 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 are actually down quarter over quarter. Is this you kind of learned your lessons from past, you know, inventory run-ups? 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, you know, 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 2.5x because that is a key focus in the company. And having the right inventory levels is a priority for all of us. And, again, in some of those cases, as I mentioned, I mean, when you have a supply chain from Asia, including, you know, all the way to coconut oil, all the way to produce methyl esters, all the way to bring those to the U.S., it 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 our inventory levels as we streamline our footprint asset base.

Understood. Thank you for taking my questions. Thank you.

Our next question comes from David Silver of Freedom Capital Markets. Your line is open.

Yeah. Hi. Good morning. Thank you. Good morning, David. David. I have a bit of a scatter of questions, so I am sorry. It will be a little disjointed. You know, regarding Project Catalyst, you did go into 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, you know, all of the activities will mainly affect, you know, Surfactants segment as opposed to Polymers or Specialty Products?

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

Okay. Great. Thank you. I wanted to ask a question about your CapEx guidance for 2026. So at a range of $105 million to $115 million, that would be your lowest spend in several years, although if you go back a ways, you know, 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, at a $100 million range for our normal CapEx. Now, of course, we have a few new sites. Right? We acquired two sites with Invista, and we have Pasadena. But, look, the $110 million—let us 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, and EHS, IT, R&D, and all of those buckets. So what I will say is you can call it, you know, less than $100 million for the normal base CapEx and then some growth CapEx on top. It is not significant, but it is 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, you know, amongst some other ingredients producers that I track, there has been a lot of commentary about the stretched consumer—middle income or thereabouts—in the demographic customer. And there has been a lot of talk for a while, but even recently about consumers trading down, right, in their choice of personal care, let us say, personal care products. Would you say that that has been part of your view here and now? And, you know, how are you kind of adapting to that somewhat evolving demand profile, maybe, you know, to reflect a stretched, you know, kind of middle income consumer for personal care?

Yeah. 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 two things: personal care, and then you have all the cleaning piece. But on the personal care, what I will say is that is why our huge focus is on tier two and tier three, 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 two and tier three, on sulfate-free for personal care, is the right focus to continue growing where the consumer is going. Right? That is where the consumer is going, and that is where we are investing and that is where we are putting our focus.

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

Look. Tariffs 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 an impact in 2025, and that is why I put it in my remarks. Right? I mean, inflationary pressures in raw materials and tariffs—we were not expecting that when we started 2025—and the reality is that all those millions of dollars add up. And we will 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 is the strategy. But, of course, we need to continue evaluating every supply chain based on where these dynamics go. But, again, we expect 2026 to be as volatile as 2025 in regards to tariffs, and we will look for every opportunity that we have in that front, including, you know, refunds of the previous tariffs that we paid.

Okay. Great. I appreciate all the help. Thank you.

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

Well, 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.