Good morning. My name is Bove and I will be your conference operator today. Welcome to Ecovyst's Fourth Quarter 2023 Earnings Conference Call and Webcast. Please note today's call is being recorded and should run approximately 1 hour. Now, at this time, I will turn things over to Mr. Gene Shiels, Director of Investor Relations. Please go ahead, sir.

Thank you, operator. Good morning and welcome to the Ecovyst fourth quarter and full year 2023 earnings call. With me on the call this morning are Kurt Bitting, Ecovyst's Chief Executive Officer; and Mike Feehan, Ecovyst's Chief Financial Officer. Following our prepared remarks this morning, we'll take your questions. Please note that some of the information shared today is forward-looking information, including information about the company's financial and operating performance strategies, our anticipated end-use demand trends and our 2024 financial outlook. This information is subject to risks and uncertainties that could cause the actual results and the implementation of the company's plans to vary materially. Any forward-looking information provided today speaks only as of this date. These risks are discussed in the company's filings with the SEC. Reconciliations of non-GAAP financial measures mentioned in today's call with their corresponding GAAP measures can be found in our earnings release and in presentation materials posted on the Investors section of our website at ecovyst.com. I'll now turn the call over to Kurt Bitting. Kurt?

Thank you, Gene, and good morning. First, I want to thank my Ecovyst colleagues for delivering a strong finish to 2023. Despite the economic uncertainty and operational challenges that we faced last year, our Ecovyst colleagues remain dedicated to their core purpose of delivering high-quality products and reliable services to our valued customers. Despite the macroeconomic uncertainty, relative stability and demand fundamentals across the majority of our end users for both Eco Services and Advanced Materials and Catalysts helped Ecovyst deliver solid financial results for the fourth quarter of 2023. High refinery utilization, favorable gasoline demand, and the trend toward higher-octane and cleaner burning fuels continued to drive alkylate production in 2023, providing support for our regeneration services business where volume was up compared to the fourth quarter of 2023. Sales volume for virgin sulfuric acid was also up compared to the fourth quarter of 2023, albeit with weaker pricing dynamics associated with softer macroeconomic conditions, particularly in advanced materials and catalysts. Fourth quarter sales were up considerably compared to the fourth quarter of 2022. While polyethylene sales volume was lower compared to the prior year fourth quarter, higher pricing and strong demand for hydrocracking catalysts and customized catalyst applications contributed to the sales growth. Given these volume and pricing dynamics, our fourth quarter 2023 adjusted EBITDA was $70 million. During the fourth quarter, we maintained our focus on the strategic initiatives and operational priorities that we believe are positioning Ecovyst to deliver strong growth in the future in our core and industrial applications as well as in the emerging allocations we discussed in our November Investor Day. For the Zeolyst joint venture, these emerging applications include the ongoing expansion of sustainable fuel production, both for renewable diesel and sustainable aviation fuel and catalysts specifically designed for advanced recycling of plastic waste. We are benefiting from the growth in renewable diesel today, and we expect our Zeolyst technologies for alcohol-to-jet SAF production to gain additional momentum this year. For our advanced silicas portfolio, we highlighted a number of nascent platforms, including our AlphaCat advanced silicas and our AlphaSelect functionalized silicas for use in applications such as mobilized enzymes, carbon capture, and clean water. I'm pleased to announce that during the fourth quarter, we achieved our first sale of advanced silicas for enzyme applications, and we anticipate additional sales this year as we look to expand our support for all these emerging applications. In light of our favorable financial results for the quarter, cash generation remained positive, providing a reduction in our net debt leverage ratio. We ended the year with a net debt leverage ratio of 3x, down from 3.2x at the end of the third quarter. In terms of capital allocation priorities, continued reduction in our leverage ratio remains a key focus as we look to make substantial progress this year toward our target leverage ratio of below 2.5x. Lastly, over the past three years, we have made significant progress in supporting our customers with more sustainable products and technologies. In addition, we have worked to drive more sustainable business practices across our organization. Consistent with the spirit of continuous improvement, two years ago, we were recognized by EcoVadis with a silver medal sustainability rating. Last year, in recognition of our continued progress, we achieved gold medal status with EcoVadis. I'm now pleased to report that Ecovyst recently achieved platinum medal status with EcoVadis in recognition of our incremental efforts to integrate the principles of sustainability and corporate social responsibility into our overall business practices. This recognition places Ecovyst in the top 1% of all companies rated in our peer group. As we turn to Slide 6, I'll provide an update on our near-term demand outlook. We believe the long-term demand trends for the end uses we serve remain very compelling, and I want to emphasize that the longer-term end-use outlook growth expectations and financial targets we shared in our November Investor Day remain intact. However, for 2024, we believe there is significant near-term economic uncertainty arising from a number of factors, including persistent inflation, rising interest rates, destocking, geopolitical tensions, and weak demand in Europe and China. Given the current uncertain macroeconomic environment, we are cautious about the trajectory of near-term demand trends. As a result, while we anticipate stronger demand fundamentals in the second half of 2024, we have tempered our expectations for the first half of the year. For our Regeneration Services business, we expect high refinery utilization with stable gasoline demand and increased exports in 2024. As alkylate demand continues to be driven by tightening fuel standards such as Tier 3, we expect these fundamentals to continue to provide a favorable backdrop for our regeneration services business this year. For virgin sulfuric acid, in light of the significant impact that Winter Storm Elliott and the production headwinds we faced in 2023 had on sulfuric acid sales, we expect volume recovery for virgin sulfuric acid in 2024. We specifically for our sales into the production of nylon intermediates, while destocking was a factor in the demand softness we experienced in 2023, we believe the destocking phase is behind us. However, the global demand outlook for engineered plastics remains uncertain, in part due to surplus capacity and continued demand weakness in Asia. We expect sulfuric acid demand for the mining applications that we service to remain stable in 2024 with ongoing copper expansion projects in the U.S. and the longer-term projected global supply deficit for copper underpinning demand. We believe the economics of these expansion projects remain favorable with current copper prices. For the wide range of industrial applications we serve, we expect the portfolio effect will provide a level of stability for virgin sulfuric acid sales in 2024, with stable to positive demand in many end-use applications serving to counter softer demand than others. We expect relative stability in end uses such as lead-acid batteries, water treatment, and chlor-alkali to balance the potential for eroding demand in end uses such as paper and packaging where demand weakness is driven by capacity rationalization in certain geographies. Overall, for the first half of 2024, we see softer industrial demand for virgin sulfuric acid. And while significant amounts of our virgin sulfuric acid sales are under long-term contracts, we currently see weaker market sentiment resulting in pricing pressure for short-dated contracts and spot sales. For our Chem32 catalyst activation business, we see demand remaining strong in 2024, supported by continued growth in sustainable fuel production and expanded customer interest. Likewise, we see stable demand for our treatment services business with demand and activity levels highly correlated to factors such as consumer spending. Turning to Advanced Materials and Catalysts. For advanced silicas, we believe that the inventory destocking that adversely impacted demand for polyethylene catalyst over the second half of 2023 has run its course. While market forecasts are projecting global polyethylene demand to be up 2% to 3% in 2024, we believe that excess global capacity will continue to weigh on operating rates. As such, we are not projecting a significant near-term change in the demand for polyethylene catalysts, but the prospect of a stronger second half of this year exists. We believe we are well-positioned for a recovery in demand, particularly given our representation in North American and Middle Eastern markets, where raw material and energy costs provide more favorable production economics. Following positive sales momentum in the fourth quarter in North America, we expect modestly lower operating rates in the mid-80% range with weaker first quarter sales as customers work through end-of-year inventories. In the Middle East, we expect operating rates to remain robust, supported by a cost-advantaged feedstock position and strong export activity. For Europe, we expect polyethylene demand to decline in 2024 due to the poor economic climate. And in Asia Pacific, we expect the Lunar New Year and sluggish restocking activity to be a factor in the first quarter. Within our Zeolyst joint venture, our core applications include hydrocracking catalyst petroleum-based fuels and Zeolyst used in emission control applications. Hydrocracking catalysts are high value add fixed bed catalysts that refineries change out every 3 to 4 years, even though we expect refinery margins to remain healthy for 2024, and many large customers completed catalyst change outs last year. So we believe 2023 was likely a near-term peak year for sales of hydrocracking catalysts, and we currently expect that 2024 will be a lower cycle year for hydrocrack catalyst sales. In terms of sales cadence, we have lowered our sales projections for the first quarter due to revised order timing. For our sales in emission control applications, we expect the current economic environment will translate into lower production and delivery of heavy-duty diesel vehicles. Turning to the production of sustainable fuels, which include both renewable diesel and sustainable aviation fuel or SAF, our Zeolyst is used in the dewaxing phase of those sustainable fuels production processes. We expect robust sales in 2024, with sales slightly stronger in the second half of the year. North American renewable diesel and sustainable aviation fuel capacity is projected to grow by approximately 33% this year, supported by attractive financial incentives with 8 production facilities expected to start up in 2024. For the European Union, renewable diesel and SAF capacity is projected to grow by 43% this year with 9 facilities expected to start up in 2024. Looking forward, we see good progress in licensor activity supporting pilot production of SAF using alternate technology referred to as alcohol to Jet. Our Zeolyst has a key role to play in the oligomerization phase of this emerging technology, where our catalysts are used to build the carbon chain in the production of SAF. We believe the focus on advanced recycling technologies for plastic waste provides significant growth opportunities for Ecovyst. We continue to work with industry leaders on the application of Zeolyst in these recycling processes in which our Opel Infinity family of catalysts provides a step change reduction in thermal intensity for catalytic pyrolysis and where ZI catalysts can be used to enhance the quality of pyrolysis oil, providing higher value end products and expanding potential for use as feedstocks and chemical production. As we discussed in our recent Investor Day, we have already had pilot sales of our catalysts for advanced recycling. This year, there are 12 advanced recycling plants for plastic waste recycling expected to be commissioned. And with the momentum we see in this area, we continue to expect commercial sales in early 2025. I'll now turn the call over to Mike for a more detailed discussion of our fourth quarter and full year financial results.

Thank you, Kurt. I will begin with a review of our fourth quarter and full year 2023 financial results. Fourth quarter sales, including our proportionate 50% share of sales from the Zeolyst joint venture, were $226 million compared to $223 million in the fourth quarter of 2022. The higher sales volume across both businesses and the benefit of continued favorable pricing within Advanced Materials and Catalysts was largely offset by the $9 million impact from the pass-through of lower sulfur costs as well as the pass-through of lower natural gas and freight costs within Eco Services. Adjusted EBITDA for the fourth quarter was $70 million, up 1% over the prior year fourth quarter. Favorable pricing and higher sales volume were partially offset by lower net pricing in eco services on lower raw material pass-through pricing. The consolidated adjusted EBITDA margin for the fourth quarter was 31%, in line with the fourth quarter of 2022. On a full year basis, total sales for 2023, including our proportionate 50% share of sales from the Zeolyst joint venture, were $848 million compared to $953 million in 2022. Of the change in sales, $86 million was associated with the pass-through effect on pricing of lower sulfur costs. The balance of the decrease reflects lower sales volume for virgin sulfuric acid, lower demand for polyethylene catalyst and the relative timing of niche custom catalyst sales. This was partially offset by higher average selling prices across both segments. Full year 2023 adjusted EBITDA was $260 million, down 6% compared to $277 million for 2022, driven by the lower sales volume along with higher unplanned repair and maintenance costs. The full year 2023 adjusted EBITDA margin was 31%, up compared to 29% in 2022. As we move to the next slide, I'll highlight the primary components of the change in adjusted EBITDA compared to the fourth quarter of the prior year. Similar to the last several quarters, average sulfur costs for the fourth quarter of 2023 were lower than in the prior year. The pass-through of these lower sulfur costs had an impact of $9 million in variable cost with a corresponding reduction in average selling prices. As such, the lower sulfur cost pass-through on sales during the quarter had no impact on adjusted EBITDA. Our price to variable cost ratio continues to be favorable, while variable costs were lower for the quarter, the pass-through pricing on some of these costs, including natural gas and freight were also lower. However, implemented and base price increases continue to be favorable, generating a positive price-to-cost ratio. Turning to the segment results, we will begin with Eco Services. Eco Services sales for the fourth quarter were $141 million compared to $160 million in the fourth quarter of 2022. The change in sales primarily reflects the pass-through of lower sulfur costs of $9 million and lower pricing in regeneration services associated with the pass-through of lower natural gas and freight costs. These factors were partially offset by higher regeneration services volume and higher demand for virgin sulfuric acid for mining and opportunistic spot sales. Eco Services adjusted EBITDA was $48 million in the fourth quarter compared to $54 million in the prior year. While demand remains strong in both regeneration services and virgin sulfuric acid, the decrease in adjusted EBITDA was driven by lower net pricing associated with lower raw material pass-through pricing. Eco Services adjusted EBITDA margin for the fourth quarter was 34%, in line with the fourth quarter of 2022. Turning to Advanced Materials and Catalysts. Total fourth quarter sales for Advanced Materials and Catalysts, including our 50% proportionate share of Zeolyst joint venture sales, were $84 million, up $21 million or nearly 34% compared to the fourth quarter of 2022. For advanced silicas, fourth quarter sales of $31 million were up 37% compared to the year-ago quarter, reflecting higher sales across all product lines. While sales volume for polyethylene catalyst was lower compared to the fourth quarter of 2022, favorable pricing and the higher sales of niche custom catalysts drove the increase year-over-year. For the Zeolyst joint venture, sales were $53 million, up $13 million or 32% compared to the fourth quarter of 2022, primarily driven by higher sales of hydrocracking catalyst. Fourth quarter 2023 adjusted EBITDA for Advanced Materials and Catalysts was $27 million, up $7 million or 34% compared to the year-ago quarter, with the increase driven by higher pricing and sales volume. Adjusted EBITDA margin for Advanced Materials and Catalysts was 32%, in line with the fourth quarter of 2022. Turning to cash and leverage on the next slide. During the fourth quarter, cash generation was very strong, providing for a reduction in our net debt leverage ratio of 3x as we continue to make progress towards our net target of less than 2.5x. On a full year basis, free cash flow generation was $72 million. This was in line with our recent expectations, but below the prior year driven by the lower adjusted EBITDA, lower dividends from Zeolyst joint venture, higher cash taxes and cash interest as well as an unfavorable change in working capital year-over-year. As discussed in our Investor Day in November, we continue to target a cash conversion ratio of approximately 75%. For 2023, our cash conversion ratio was 75%. We continue to maintain a balanced approach for capital allocation with net leverage reduction remaining a key priority. During 2023, we used cash to repurchase shares largely in connection with secondary offerings of our equity sponsors. In 2023, we repurchased 7.5 million shares for $79 million. Our balance sheet remains in strong shape. At year-end, we had total available liquidity of $152 million comprised of $88 million of cash and availability under our ABL facility of $64 million. We have one tranche of debt outstanding, which matures in 2028. Excluding outstanding letters of credit, there were no outstanding borrowings under our ABL facility at year-end. We have capped our interest exposure on approximately 75% of our outstanding debt out to the third quarter of 2026. And our weighted average cost of debt was approximately 5% during 2023. Now let's turn to guidance and expectations for 2024. For 2024, we expect sales on a GAAP basis to be between $715 million and $755 million, and we expect our proportionate 50% share of sales for the Zeolyst joint venture to be between $145 million and $165 million. As such, we anticipate total sales including our proportionate share of the Zeolyst joint venture sales to be between $860 million and $920 million or up approximately 5% at the midpoint compared to 2023. In terms of the pass-through effect of sulfur pricing, we are currently expecting a very modest decrease in average sulfur pricing for the first half of 2024, with the impact on sales largely immaterial. As Kurt discussed in his comments about our end-use demand outlook, the value of octane and alkylate remains favorable, and we expect continued high refinery utilization to support regeneration services activity. We expect a modest, but cautious recovery of virgin sulfuric acid sales relative to 2023, primarily related to demand for virgin sulfuric acid going into the production of nylon intermediates and the expectation for higher year-over-year production volume. As such, we expect sales in Eco Services to be up mid-single digits. In Advanced Materials and Catalysts, we expect improvement in demand conditions for polyethylene catalyst and growth in our customized catalyst applications to drive high single-digit to low double-digit sales growth in advanced silicas. And for the Zeolyst joint venture. While we expect continued growth and sustainable fuel catalyst sales in 2024, sales of hydrocracking catalysts are expected to be significantly lower, which is typical when coming off a peak year like we experienced in 2023. For 2024, we are expecting adjusted EBITDA to land in the range of $255 million to $275 million. In terms of segment expectations, for the full year 2024, we expect adjusted EBITDA for Eco Services to reflect a mid to high single-digit percentage increase compared to 2023 based on the anticipated recovery of virgin acid sales into nylon intermediates, strong virgin acid sales into mining and higher contracted pricing in regeneration services. This is somewhat offset by downward pressure on virgin acid pricing driven by the uncertain macroeconomic environment and $10 million to $15 million of higher maintenance and turnaround costs associated with enhancing our operational reliability, to help ensure long-term volume increases as we discussed during our November 2023 Investor Day. For Advanced Materials and Catalysts, we expect 2024 overall adjusted EBITDA to be in line with 2023. Advanced Silicas is expected to be up on a high single-digit basis driven by more normalized demand growth for polyethylene catalyst and sales into emerging areas. Adjusted EBITDA for the Zeolyst joint venture, however, is expected to be down on a high single-digit percentage basis, driven by lower sales of hydrocracking catalysts off a peak year in 2023 and anticipated unfavorable fixed cost absorption associated with production and sales timing and increased costs to accelerate the growth in our emerging applications. In addition, we expect our corporate costs to be around $30 million on an annual basis. For the full year 2024, we are expecting adjusted free cash flow of $85 million to $105 million including CapEx of $70 million to $80 million in 2024. The higher CapEx reflects costs associated with the previously announced expansion of advanced silicas capacity and our Kansas City site and investment in our Chem32 catalyst activation business. Given this expectation for cash generation and assuming no uses of cash for other capital allocation priorities, we expect to deleverage nearly half a turn, resulting in significant progress towards our target net debt leverage ratio of below 2.5x. For interest expense, taking into account the interest caps that we have in place which cover approximately 75% of our exposure, we are projecting a range of $45 million to $55 million, with a weighted average cost of debt of approximately 5.5%. Having covered our expectations for the full year of 2024, I want to provide some directional guidance for the first quarter of 2024. On a consolidated basis, we expect first quarter 2024 adjusted EBITDA to be approximately $40 million. For Eco Services, in light of the impact of Winter Storm Elliott and the impact of the extended turnarounds in the first quarter of last year, we expect first quarter 2024 adjusted EBITDA to be up approximately 10% compared to the first quarter of 2023. For Advanced Materials and Catalysts, we expect first quarter 2024 adjusted EBITDA to be between $7 million to $8 million. The lower adjusted EBITDA compared to the prior year is primarily driven by a cautious view around the recovery of the polyethylene market and anticipated unfavorable fixed cost absorption associated with production and sales timing. I will now hand the call back to Kurt for some closing remarks.

Thank you, Mike. Despite near-term economic uncertainty, we remain positive on the long-term growth opportunities for Ecovyst. We believe our core and industrial businesses will continue to experience solid growth. We have well-established customer relationships, leadership positions in the end uses we serve, and we have articulated our plans to drive efficiency gains in order to support sales growth through automation, debottlenecking opportunities, capacity expansions, and through reliability initiatives in our Eco Services segment that will also translate into incremental volume and sales opportunities. For our Regeneration Services business, we believe the role of alkylate in the production of cleaner burning fuels is well appreciated. And the long-term demand outlook for refined products in North America and the export markets our customers serve will continue to provide opportunities for growth. Although we see some near-term demand softness in some industrial applications for virgin sulfuric acid, mining demand remains strong, and we expect further improvement in demand for virgin sulfuric acid sales in the production of nylon intermediates as the global economy improves. We also believe the portfolio effect for the balance of our industrial applications will continue to provide a level of overall stability. In terms of our sales of polyethylene catalysts, we believe global polyethylene demand will return to historic growth rates of approximately 3%. Specifically, for Ecovyst, we expect our sales of polyethylene catalysts will continue to grow differentially compared to the overall market, benefiting from our customized catalyst design approach and our leading supply share positions in North America and the Middle East, which benefit from advantaged feedstock and energy costs. Lastly, we have announced a significant expansion of polyethylene catalyst production capacity at our Kansas City site that is supported by firm customer commitments, providing further support for our future growth expectations. Moreover, we are energized by the opportunities for growth provided by emerging technologies, which are not just aspirational. We continue to see robust growth in catalysts supporting the production of sustainable fuels. We have the technology leadership position for Zeolyst for advanced recycling technologies, and we have developed advanced silicones and functionalized silicas that position us to capture growth in enzyme mobilization in food, chemical, and biomass-based processes as well as carbon capture and water treatment applications. In summary, we have a portfolio of products and technologies that we believe provide for compelling organic EBITDA growth, as we discussed in our Investor Day. The long-term growth trends supporting Ecovyst's products and services are reflected in the anticipated 2024 volume growth across the majority of our product lines. Our current guidance reflects our caution around near-term demand conditions and the expected off-cycle year for event-driven hydrocrack sales. As I indicated earlier, we believe the second half of the year could provide for improved demand conditions, including stronger sales of virgin sulfuric acid and polyethylene catalysts, and we will capture opportunity for incremental growth as they arise. At this time, I will ask the operator to open the line for questions.

Thank you, Mr. Bitting. And we will go first to Patrick Cunningham at Citi.

Hi. Good morning. This is Eric Zhang on for Patrick. My first question is, what is driving the higher pricing through key catalysts? And do you expect that trend to continue?

Hi, Eric. This is Kurt. Well, for polyethylene, we do believe that destocking that we saw really in the latter half of 2023 is largely behind us, and we do expect double-digit sales growth during the year, albeit weighted towards the second half of the year, and we've implemented price increases as time goes along and have allowed us on our contracted prices. Just a further comment really on polyethylene, our expectations there are geographic-centric as well, where most of our sales are centered in North America as well as the Middle East, where those regions have a high advantage in terms of raw materials and lower energy costs. Europe, we're less exposed and less exposed in Asia Pacific in those two regions generally have more of a muted recovery or less of an uptick this year.

Thank you. My last question is about Eco Services. Can you share any trends you're observing with existing customers renewing contracts? Have there been any challenges in getting customers to reassign? Thank you.

Yes, thanks for the question. So when you look at the regeneration business every year, those contracts are generally longer in length, around 5 to 10 years. So any given year, there's a certain basket of contracts that are up for renegotiation and recontracting. So I would say as time has gone along, we've re-upped those customers, and we've been successful at implementing price increases as time has gone along. In Virgin sulfuric acid about 90% of our customers are under a long-term contract basis. The 10% that we call kind of spot sales or short-dated contracts, that's where we've seen a little bit of pricing pressure, as I've mentioned on the call. And that's really related, I would say, mainly to the industrial space where we see some caution from some of those industrial consumers around 2024.

Great. Thank you.

Thank you. We go next now to Aleksey Yefremov at KeyBanc Capital Markets.

Thanks and good morning, everyone. Just a follow-up on the industrial piece of virgin sulfuric acid sales, could you quantify the magnitude of this price pressure, either as a total percent of your virgin acid business or as a percent of that bucket of short-term contracts?

Sure. Regarding virgin sulfuric acid, 90% of our portfolio is tied to long-term agreements, which we are currently adjusting. The issues mainly arise from short-dated or spot sales. We are observing some caution from industrial customers, and there has been a rationalization in the pulp and paper industry. While we don't sell a lot into that sector, it has led to some oversupply in certain regions where we don’t operate, causing temporary imbalances that need to be resolved. To quantify this, around 10% of our virgin acid portfolio could translate to $5 million to $10 million in pricing pressure related to the industrial market.

Thanks, Kurt. Very helpful. You mentioned accelerated increased costs driven by investments in these emerging applications kind of hard from outside to judge us is because it just costs more to do what you envisioned? Or is it really that there's a bigger opportunity and those opportunities are coming faster, if you could elaborate on this?

Yes. As we mentioned during our Investor Day, focusing on our emerging technologies is a major priority for us. We're looking at areas such as advanced plastics recycling, sustainable fuels, and the progress we're making with mobilized enzymes. We're at the beginning stages of this, developing our capabilities and enhancing our sales and marketing efforts in these fields. We're making these initial investments as planned to achieve long-term sales, as we discussed during our Investor Day.

Thanks a lot.

Thank you. We go next now to John McNulty at BMO.

Yes, good morning. Thank you for taking my questions. I have a question regarding EBITDA and the advanced materials and catalysts. It appears that the first quarter will be nearly half of what it was last year, suggesting that the next three quarters will remain relatively flat. Can you help clarify where the expected improvement will come from? Is it primarily due to fluctuations in the HPC catalyst area, or is it related to the polyethylene ramp you mentioned? What would you say is the main factor contributing to the weakness in the first quarter and the outlook for the remaining three quarters?

John, this is Mike. Thanks for the question. Yes, it's a combination of all those factors, right? So we mentioned earlier that we are seeing a little bit of a cautious feel in Q1 around polyethylene starting out, but we do expect polyethylene demand to continue and actually improve over the prior year, call it, in a double-digit basis. We also see that hydrocracking, while we came off a peak year from last year, it is a little lighter in Q1 than originally anticipated, but we do see it growing in Q2, Q3, and then into Q4. So it's a little bit of the nature of the business, primarily around the hydrocracking and the timing along with some of the niche custom catalysts. Polyethylene is more constant. However, just given off of what we saw in 2023, it's a little lighter starting out, but it's ramping up certainly in the later half of the year.

Got it. Okay. No, that makes sense. And then in one of the slides, you highlighted some weakness in the heavy-duty truck market, which I assume is tied to some of the new regulations where there was maybe a little bit of pull forward, I guess, how long does that normally last? Is that a year? Does it tend to last a little bit longer than that? I guess how should we be thinking about that?

Yes, thanks, John. There are a few challenges in the trucking sector, mainly due to a general slowdown in that transportation segment, which seems to be related to the current economic uncertainty. Additionally, companies are working through a significant backlog that built up in 2021, 2022, and 2023, where there were considerable back orders that have since been cleared. This has contributed to some sluggishness. Moreover, the implementation of the Euro VII regulation, initially scheduled for 2027, has been postponed by two years in Europe. This delay affects the introduction of next-generation catalyst technologies intended for those trucks, which were designed to reduce emissions by 80%. Overall, these factors have created a bit of a headwind for that segment this year.

Got it. Thanks very much for the color.

Thank you. We go next now to David Begleiter at Deutsche Bank.

Thank you. Good morning. Kurt, in Eco Services, you had a number of headwinds in 2023, the winter storm, outages, turnarounds, and some weak demand and destocking. So given that, why isn't the EBITDA growth a little faster than mid 5% plus in '24?

Yes, thank you for the question, David. As we mentioned earlier, we are approaching 2024 with caution. Many of our customers, especially in the industrial segment, are adopting cautious strategies, which has influenced our views on demand trends, particularly for virgin sulfuric acid. However, we anticipate strong performance in Eco Services, as refining margins and the overall refining business remain healthy. We expect a robust year for regeneration, and both the treatment services business and Chem32 are scheduled to be very busy this year. In the virgin acid segment, we plan to increase volume in the market, particularly for nylon, where we faced challenges last year but now see signs of recovery. Although I wouldn’t classify this as a significant up cycle year, we do expect to supply more product to the nylon segment. One of the challenges for Eco Services stems from the industrial sector, where pricing pressures are affecting the short-term and spot pricing of virgin acid. Additionally, we are investing around $10 million to $15 million more in maintenance and reliability this year. During our Investor Day, we discussed implementing a long-term reliability enhancement program that involves adding resources to our plants and increasing automation. This initiative aims to improve reliability and eliminate bottlenecks over time, which contributes to the additional costs associated with the reliability enhancement program.

And Kurt, regarding that program, is it a one-time initiative or, in 2025, should we expect it to decrease by $10 million to $15 million? Or will it remain at this elevated level?

Yes. Some of that will be due to additional turnaround costs that we have not mentioned. These costs will be ongoing because the resources we are putting in place will be sustained. We do have accelerated turnaround costs this year, mostly occurring in the first half. The automation efforts we are implementing will also align with the plan. Therefore, I believe a portion of that will continue over the long term.

Thank you.

Thank you. We go next now to Hamed Khorsand at BWS Financial.

Hi, good morning. So first question I had was given what has happened in '23 to your business, how have you adjusted in '24? I mean are you through all the inventory that you might have had in '23 because of disruptions and so forth? So what kind of lingering effects are there in '24 from those effects in '23?

Yes, good morning, Hamed. In 2023, we faced about $20 million in operational-related challenges in the Eco Services business due to the winter storm at the start of the year and extended maintenance downtime at the Houston plant. We do not anticipate these issues in the current year. As I mentioned, we are implementing an enhanced reliability program that will lead to increased volumes. We expect to produce and sell more virgin sulfuric acid this year, despite some industrial headwinds in certain areas of the virgin acid market. Additionally, polyethylene catalysts, which were impacted by destocking in the second half of last year, are expected to recover and show double-digit growth this year, especially in the second half, as Mike noted. Similarly, the nylon segment, which affected the virgin acid business last year due to destocking, is projected to see an increase in volume this year, although it won't be a peak cycle year, but there should be some recovery.

Okay. And my last question is on the slides provide today, you're highlighting the slow conditions for heavy-duty vehicles. That's a new item for you on the slide. Why is that such a big deal now versus prior quarters where that was not even an issue or even from a positive side or negative side? I mean, how bad of a drag is this that you're highlighting in now?

Yes, I think, Hamed, the business has been relatively stable over the past year or two regarding the backlog of heavy-duty diesel vehicles. It's not a significant segment for us. We perceive headwinds in that market related to the demand for our heavy-duty diesel vehicles and the regulatory changes I previously mentioned regarding Euro 7. From a sales perspective, things are somewhat flat for us. Therefore, I wouldn't classify it as a major obstacle; it's just a segment where we are encountering challenges.

Okay. Thank you.

We'll go next now to David Silver at CL King.

Thank you for taking my question. I would like to ask about your spending initiatives for the upcoming year. First, I've noticed an increase in your capital expenditures, which I assume includes investments in Kansas City. Given the anticipated demand growth, I was curious if your capital spending might have been even higher to prepare for this. Additionally, could you clarify or highlight any increases in your research and development spending or any expenditures related to pre-commercialization? Beyond operational aspects, what other spending initiatives should we consider that will support the growth you mentioned in your release and during your comments? Can you provide a clearer overview of this?

Yes, good morning, David. This is Mike. Regarding your question about capital spending, we anticipate an increase of approximately $10 million in CapEx at the midpoint of our guidance range. Most of this increase is tied to the Kansas City expansion, which we mentioned during our Investor Day. This project will unfold over at least a two-year period through 2025. Our investment in this facility is not a completely new endeavor, as we have existing structures and capacity; we are merely expanding what is already there. Thus, the CapEx involved is not as high as one might expect for constructing a new plant, though we are increasing our polyethylene catalyst production capacity by about 50%. Additionally, we have some capital expenditures related to Eco Services, where we are also looking to expand our Chem32 Catalyst activation business. In terms of R&D and pre-commercial spending, as Kurt noted earlier, we are experiencing some increased costs as we begin to ramp up our emerging product lines. We're excited about the sales momentum we've experienced in 2023, particularly in biocatalysis, aligning with what we presented in our November Investor Day. We also touched on the spending on Eco Services, focusing on reliability and turnaround costs. I hope this answers your questions about costs and spending initiatives.

Yes. Thank you for that. And then maybe just from another angle. Yes, I was wondering about the operational plans, the downtime overall planned by your portfolio of refining customers. So I guess refining margins largely have been very healthy for the last few years. And anecdotally, I guess, a lot of refineries have deferred or delayed downtime as much as they could to take advantage of what they viewed as favorable profit opportunities. As you kind of look at the planned downtime and planned operating strategies that your refiner customers have shared with you. I mean, should we expect another year of very high or close to full utilization there? Or are there some major outages or downtime planned relative to maybe 2023 or 2022, excluding the weather events? Thanks.

Sure. Thanks, David. So in terms of when we look at refinery downtime, it affects two parts of the business differently. When you look at Eco Services, on the acid regeneration we don't really see a particularly high amount of customer turnarounds this year in their calculation units. So we're expecting, I would say, more of an average year you look at hydrocracking catalysts, obviously, coming off a peak cycle year in 2023, selling hydrocracking catalysts, which some of those turnarounds took place in Q4 of 2023. Some of them are taking place in Q1 2024, they were buying the catalyst to have it on-site for their turnaround. So we expect, and again, hydrocracking to be more of a low cycle this year, so we do expect less turnarounds in that space as well. But those are for our customers. So there certainly are other refiners or other regions that could have different issues. But in general, I think we see certainly average in the Eco Service side and less turnarounds in hydrocracking just because it's an off-cycle year.

Yes. Yes, you did highlight that there. Okay. That’s great. Thank you very much.

And we'll take a follow-up question now from John McNulty at BMO.

Yes, thanks for taking my follow-up. So on the polyethylene catalyst demand, which is a pretty strong forecast for the year, up double digits, I guess can you help us to think about how much of that's just core industry growth versus account wins because I think you have had a bunch of wins and some assets are still in the process of ramping up. So that may be some of the benefit. But can you help us to think about that high level?

Sure. I think it's a combination of both successes and increased utilization rates. We're seeing a recovery, especially in the Middle East and North America, where very low natural gas prices are creating a significant opportunity in polyethylene production. We have a stronger presence in those areas, and therefore, we're witnessing some recovery there. Additionally, as Mike mentioned, the recovery is more weighted towards the second half of the year. While a lot of it is due to recovery, it also includes some new account wins we’ve achieved. So overall, it's a mixed scenario, but if I had to categorize it, I'd say it's predominantly about the general recovery.

Got it. Thanks for the color.

And ladies and gentlemen, it appears we have no further questions today. So that will bring us to the conclusion of Ecovyst's fourth quarter 2023 Earnings Conference Call. We'd like to thank you all so much for joining us today and wish you all a great remainder of your day. Goodbye.