Good morning. My name is Madison and I will be your conference operator today. Welcome to the Ecovyst Second Quarter 2024 Earnings Call and Webcast. Please note, today's call is being recorded and should run approximately one hour. Currently, all participants have been placed in a listen-only mode to prevent any background noise. After the speakers’ remarks, there will be a question-and-answer period. I would now like to hand the conference over to Gene Shiels, Director of Investor Relations. Please go ahead.

Thank you, operator. Good morning and welcome to Ecovyst's second quarter 2024 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 shared 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 the presentation materials posted on the Investors section of our website at ecovyst.com. I'll now turn the call over to Kurt Bitting.

Thank you, Gene, and good morning. Overall, we are pleased with our results for the second quarter of 2024. We delivered financial results above our forecast, and we made solid progress on a number of strategic initiatives. During the quarter, we continued to see strong demand for regeneration services supported by high refinery utilization and favorable economics for alkylate, with regeneration volume up compared to the second quarter of 2023. The sales volume was also up for virgin sulfuric acid and treatment services compared to the year-ago quarter. In our Advanced Materials and Catalysts segment, sales of advanced silicone increased compared to the second quarter of 2023 on higher sales of chemical catalysts. However, during the quarter, we saw lower sales of catalyst materials used in the production of sustainable fuels and emission control applications. All in, for the second quarter, we delivered adjusted EBITDA of $57 million. In terms of the continued strategic positioning of Ecovyst, it was a very successful quarter. By the end of May, we had completed the four turnarounds planned for eco services in the first half of the year. The work also progressed for our polyethylene catalyst production capacity expansion at our Kansas City site. Reflecting our balanced approach to capital allocation, during the quarter, we also repurchased 552,000 shares of Ecovyst common stock for a total cost of $5 million. In addition, as we announced last week, our work during the quarter culminated in an equity investment in Pajarito Powders, a company with expertise in catalysts for green hydrogen and fuel cells. This transaction is consistent with our stated strategy of leveraging our material science capabilities as we continue to position Ecovyst for growth in emerging markets. Through this investment, we gain access to and support for scaling technologies that we believe will position us to support and participate in the future growth of the hydrogen economy. Lastly, during the quarter, we strengthened our balance sheet through an amendment and extension of our term loan facility which reduced the interest rate spread and extended the maturity of the facility until June of 2031. As we turn to Slide 6, I'll discuss our near-term demand outlook. In Ecoservices, we anticipate a favorable demand forecast for regeneration, treatment services, and catalyst activation throughout the remainder of the year. We anticipate that regeneration will continue to experience strong demand, driven by persistent high refinery utilization rates and healthy margins. Our treatment services segment is expected to continue to experience high volumes as it serves as a sustainable waste management solution for numerous chemical producers along the Gulf Coast. Despite anticipating a dip in utilization rates among renewable diesel manufacturers, we are observing a rising need for ex-situ catalyst activation which is expected to contribute to a buoyant outlook for 2024 in the latter half of the year. For virgin sulfuric acid, we expect continued positive demand for mining, with copper demand sustained by continued expansion of copper mining projects in North America and borates demonstrating a normalization of inventories and stable demand. Even though the nylon industry's rebound remains subdued, we anticipate a year-over-year increase in virgin sulfuric acid sales for the nylon end use in 2024. For the remainder of our virgin sulfuric acid sales, which support a wide range of industrial end uses, including chlor-alkali and chemicals, water treatment, and paper and packaging, we have adopted a more conservative view of demand and pricing for the second half of 2024. Turning to Advanced Materials and Catalysts. In advanced silicones, global polyethylene demand is expected to be up 2% to 3% in 2024. However, the demand outlook continues to vary by geography. In North America, demand is positive with operating rates expected to approach 90% supported by exports. Producers in North America and in the Middle East, where we have sales concentration, continue to have a cost advantage with lower energy and feedstock costs and we expect these geographies to benefit disproportionately as global polyethylene demand recovers. However, projections for Europe reflect flat demand with lower operating rates of approximately 80%. In Asia, operating rates also continue in the low 80% range with subdued demand and new capacity continuing to come online. Overall, we continue to expect our sales of polyethylene catalysts and supports to be up in 2024 relative to 2023, but the magnitude of the increase remains dependent upon global demand conditions as well as customer sourcing and inventory decisions. For the Zeolyst Joint Venture, we now see weaker demand for catalyst materials used in sustainable fuel production and emission control applications, and this has led us to revise our sales expectations for these end uses in the second half of this year. As a reminder, we provide catalyst materials that are used in the dewaxing phase of renewable diesel production, and these catalyst materials sales are primarily made to the licensors of sustainable fuels production technology. Market conditions and customer sentiment evolved rapidly over the course of the second quarter, leading to our revised outlook for sales into renewable diesel production. Specifically, the pricing and value for renewable identification numbers, or RINs, which are a key incentive for renewable diesel producers declined significantly. RIN credits traded above $1.50 for several years, contributing positively to the overall economics for renewable diesel production, particularly for smaller producers. However, with the development of an imbalance between renewable diesel production and demand, the value of RINs credits has decreased significantly, recently falling below $0.50. With the lower pricing for RINs credits and increased feedstock costs due to inflation, many producers are re-evaluating production economics. As a result, there has been a slowdown in new capacity additions, and with lower near-term operating rates, we expect catalyst light to be extended, pushing out sales associated with periodic catalyst change-outs. Longer term, we continue to believe the leading technologies offered by our Zeolyst Joint Venture position us well to participate in the future growth opportunities for sustainable fuel production. While near-term economics for renewable diesel are challenged, we believe demand for our catalyst materials will improve as producers retrofit renewable diesel processes and add new units to produce sustainable aviation fuels, where demand is expected to triple by 2030 due to governmental mandates and carbon reduction targets set by the airlines. We have also revised our expectations for sales of our catalyst used in emission control applications for the balance of the year. Economic conditions in the EU, the U.K., and the U.S., including the effects of inflation and higher interest rates, have adversely impacted purchasing activity for heavy-duty diesel vehicles. For the month of May, sales of Class 8 trucks in the U.S. were down 18% compared to May of 2023, with May 2024 representing the 10th consecutive month of sales declines for Class 8 vehicles. Year-to-date, sales of these heavy-duty vehicles in the U.S. are down 15%. Additionally, although Euro 7 legislation was previously expected to go into effect in 2025, the EU has softened NOx reduction requirements and has delayed the implementation of Euro 7 for heavy-duty vehicles for 4 years, significantly impacting vehicle sales in 2024. Given the delay in the implementation of Euro 7 and the need for compliance with more stringent emission requirements, there is little incentive to upgrade truck fleets now, which is adversely affecting our sales of catalyst materials for emission control applications for the balance of 2024. For sales of hydrocracking catalysts, we continue to see good demand which led to a strong first half and we expect a similarly strong second half for 2024. However, as we discussed in our first-quarter earnings call, with 2023 representing a peak year in the replacement cycle for hydrocracking catalysts, we expect overall sales of hydrocracking catalysts in 2024 to be below peak levels in 2023. Looking into the future, we still have a positive outlook for catalyst sales and advanced recycling technologies. We expect sales to grow over the next 2 years. We are aligned with key players in the industry and expect a dozen advanced recycling plants to be built and commissioned in the next few years. I'll now turn the call over to Mike for a more detailed discussion of our financial results for the second quarter.

Thank you, Kurt. Ecovyst sales for the second quarter of 2024, including our proportionate 50% share sales from the Zeolyst Joint Venture, were $212 million, down $17 million compared to the second quarter of 2023. Eco Services benefited from strong demand for regeneration services and virgin sulfuric acid, and sales in advanced silicas increased on higher chemical catalysts. However, lower net pricing in Ecoservices associated with the timing and contractual pass-through effects of lower variable costs, as well as lower sales for catalyst materials used in the production of sustainable fuels and emission control applications, drove the overall lower sales year-over-year. Second quarter 2024 adjusted EBITDA was $57 million, down from $79 million in the second quarter of 2023, reflecting lower sales within the Zeolyst Joint Venture, unfavorable net pricing mostly attributable to the timing of the contractual cost pass-through effect, and higher planned turnaround and maintenance costs in Ecoservices. This was partially offset by the higher sales volume in both Ecoservices and Advanced Silicas. The unfavorable net pricing impact is reflected in the price and variable cost drivers, netting to a $13 million negative impact on our adjusted EBITDA in the second quarter. The lower net pricing was driven primarily by the timing and the mechanical contractual pass-through of certain costs, including energy and other index costs. Our pricing continues to exceed our variable costs. The unfavorable variance is a result of the period-over-period comparison and the quarterly timing lag. Overall, volume and mix were lower in the quarter as the lower sales in the Zeolyst Joint Venture more than offset the increase in regeneration services and virgin sulfuric acid. The balance of the decrease is largely associated with higher costs, including costs associated with the planned turnaround and maintenance activity, higher networking costs, and costs associated with our reliability initiatives, which we had previously discussed. Turning to the segment results, I'll start with the highlights for Ecoservices. Ecoservices sales for the second quarter of 2024 were $154 million, down 3%. Sales volume was up for regeneration services, virgin sulfuric acid, and treatment services. However, the sales contribution from higher volume in Ecoservices was offset by the unfavorable net pricing in the quarter. Looking to the second half of the year, we believe headwinds associated with the unfavorable timing and contractual pass-through effects of certain costs are largely behind us. Second quarter 2024 adjusted EBITDA for Ecoservices was just under $50 million. The decrease in adjusted EBITDA and adjusted EBITDA margin was primarily driven by the net pricing impact, the higher planned turnaround and maintenance costs, and networking costs to support the turnarounds. These items were only partially offset by the benefit of higher volume in the quarter. Sales for Advanced Silicas of $29 million were up nearly $3 million on higher sales of chemical catalysts. However, sales for the Zeolyst Joint Venture decreased $16 million on lower sales of catalyst materials used in the production of sustainable fuels and emission control applications. As Kurt noted, we now expect softer demand for catalyst materials used for sustainable fuels and emission control in the second half of the year. Adjusted EBITDA for Advanced Materials and Catalysts was just under $15 million. The decrease compared to the second quarter of 2023 was primarily driven by the lower volume in the Zeolyst Joint Venture. Turning to cash and leverage on the next slide, Ecovyst continues to have strong cash generation capability which we believe will continue to support a balanced approach to capital allocation. For the first 6 months of the year, adjusted free cash flow was just over $14 million compared to $2 million for the first half of 2023, reflecting higher dividends received from the Zeolyst Joint Venture in the first quarter, offsetting the lower earnings, higher interest, and taxes. During the quarter, we refinanced our term loan, extending the maturity to 2031 and reducing the interest rate spread by 35 basis points, saving over $3 million in annual interest costs. In light of this transaction, our balance sheet is in exceptionally strong shape. We continue to have interest rate caps in place that limit our interest rate exposure and our average cost of debt is expected to be approximately 5.5% during 2024. During the second quarter, we repurchased 552,000 shares of our stock at an average price of $9.05 per share for a total of $5 million. We ended the second quarter with $83 million of cash and have available liquidity of $156 million. Considering the use of cash for refinancing our term loan and share repurchases, and with the reduction in the trailing 12-month adjusted EBITDA, our net debt leverage ratio at quarter end was 3.3x. With the expected cash generation over the balance of the year and excluding any impact of share repurchases or M&A activity, we expect to end the year with a leverage ratio of approximately 3x. As noted in this morning's earnings release, we have revised our outlook for the balance of the year, considering the expected softer demand for sales of catalyst materials used for the production of sustainable fuels and emission control applications and to reflect the moderate impacts of Hurricane Beryl and a more cautious view regarding industrial demand, particularly for sales of sulfuric acid. The revisions to our full year 2024 expectations are reflected on Slide 13 with the revised outlook as follows. We now expect that GAAP sales will be in the range of $700 million to $740 million, $15 million lower at the midpoint compared to our prior guidance range. With the revised outlook for catalyst sales used in the production of sustainable fuels and emission control applications, we now expect sales for the Zeolyst Joint Venture to be between $115 million to $135 million, down $30 million at the midpoint. Adjusted EBITDA is expected to be in the range of $230 million to $245 million. In terms of segment expectations, for the full year 2024, we expect adjusted EBITDA for Ecoservices will be in the range of $195 million to $205 million. Advanced Materials and Catalyst is expected to be in the range of $65 million to $70 million, and we continue to expect our corporate costs to be around $30 million on an annual basis. We have revised our guidance for free cash flow to a range of $75 million to $85 million, down $15 million at the midpoint. But we are also providing full year guidance for adjusted net income to be in the range of $53 million to $74 million and we expect adjusted diluted income per share to be in the range of $0.45 to $0.63. In terms of specific guidance for the third quarter, we expect third quarter adjusted EBITDA for Ecoservices to be between $53 million and $57 million. For Advanced Materials and Catalysts, we expect third quarter adjusted EBITDA to be between $13 million to $15 million. Assuming unallocated corporate expenses of $7 million to $8 million, we expect consolidated adjusted EBITDA for the third quarter to be between $58 million and $65 million. We expect adjusted net income of $14 million to $21 million, with adjusted diluted income per share to be in the range of $0.12 to $0.18.

Thank you, Mike. Reflecting upon our results for the first half of 2024, I believe the Ecovyst team has done well in executing relative to our operational and strategic plan as we continue to manage through an uncertain economic environment. In doing so, for the first half of the year, we exceeded our internal expectations for financial results. For Ecoservices, we believe the volumes for all Ecoservices products as well as Ecoservices EBITDA will demonstrate year-over-year gains. For our regeneration business, in particular, despite indications that refining margins are under pressure, I'll reiterate that demand for our regeneration services is more associated with the profitability of the Appalachian units, which is expected to remain positive for the balance of 2024. For our sales of virgin sulfuric acid, we still expect sales volumes to be up in 2024 compared to 2023, but we remain cautious about the economic environment, which leads to some uncertainty about overall industrial demand for virgin sulfuric acid. While Ecoservice results for the second quarter reflected net pricing pressure associated with the timing effect of contractual pass-through of variable costs, we believe the headwinds of this timing effect are largely behind us as we go into the third quarter. With our revised outlook for sales into sustainable fuel and emission control applications for the second half of the year, we aim to mitigate the impact of these softer near-term market conditions through manufacturing cost reductions and deferring spending. We continue to be enthusiastic about the growth prospects for Ecovyst in both our foundational businesses and in emerging technologies. We're equally eager to support our new partner, Pajarito Powders, as they develop and scale their solutions for fuel cells and green hydrogen generation. In closing, even with our revised financial outlook, we expect free cash flow generation for 2024 to be up year-over-year, providing for continued flexibility for capital allocation as we position Ecovyst for the future. While we see near-term softness in two specific end uses for the Zeolyst Joint Venture, we expect modest volume growth in Ecoservices and advanced silicas, and we will continue to execute on the strategic plan that we have established to deliver long-term growth across the entirety of the Ecovyst portfolio. At this time, I will ask the operator to open the line for questions.

We will take our first question from John McNulty with BMO Capital Markets.

This is Caleb on for John. I'm just curious, how much of the lower guidance is tied to the impact from Hurricane Beryl and then lower industrial demand and then also the impact from the renewable fuels outlook?

The Beryl impact is a few million dollars. The guidance outlook, we provided some ranges for the two businesses. Ultimately, about half of it is coming from the Ecoservices side and the other half is coming from the Advanced Materials and Catalysts side. Related to the softness on the industrial side, that's primarily in the Ecoservices business. And then, of course, the change in our outlook related to both sustainable fuels, primarily, and then a little bit related to the emission control is driving the change in Advanced Materials and Catalysts.

Just in terms of the headwinds on the renewable fuels, how long do you expect that to last for? Is that kind of a 25 thing? Or is that just like the next couple of quarters dynamic?

Our view is the renewable diesel market, which is really the driver right now, is going to face headwinds probably over the next 12 to 18 months. There has been a sustained decline in the RIN credits which has led to deferred investment decisions for producers as well as slowed utilization rates in that space which affects the consumption of the catalyst. Our view is that this will likely persist for 12 to 18 months. However, we do see positivity coming in the future as sustainable aviation fuel units are built, where there is expected to be a tripling of demand between 2025 and 2030.

We will take our next question from Aleksey Yefremov with KeyBanc Capital Markets.

Can you provide some reference how low is your renewable diesel business now relative to pre-downturn levels? I don't know, is it down 20%, 100%? And is there more pressure here? Or has it stabilized a little, like goes sideways for the next 12, 18 runs?

Previously, we had said that the sustainable fuel business represented around 10% or a little more than 10% of our total sales for the Advanced Materials and Catalysts segment. Now what we see for the remainder of the year is below that 10%, so call it mid-to-high single-digit percent. In the short term, we do see there is the ability for that to grow, particularly around changes in the dynamics in the supply and demand as well as the SAF business.

And then on the pricing in Ecoservices you have the lag effect in the first half. Do you expect them to go away in the second half? Or if not, when do you think that would happen? And what do you think pricing would look like when we no longer see the lag effects?

So first, I just want to comment that we don't have any concerns around our base pricing. Our overall pricing is exceeding our variable costs, and we obviously have a profitable business. A lot of what this is, is really the mechanical pass-through nature and the timing of when those costs are incurred. So when you're looking at a period-over-period comparison, we had a big benefit in the second quarter of last year. And this year, you just don’t have the same compares the same benefit. So it looks like a big negative. We do not expect that trend to continue. You'll see a much more muted impact going forward for the rest of the year, but the overall impact from the first half does impact your overall year-over-year comparison.

Our next question comes from Patrick Cunningham with Citi.

I just want to continue on the thread with the weaker outlook in our renewable fuels as well as emission control catalysts. First, can you maybe talk about the regulatory uncertainty, whether it's the Chevron decision, election results, and what customers are saying in terms of their buying patterns? And then just in terms of the cooling demand for renewable fuels, is any of that cost optimization and how you're positioning your business taking place? Are you taking actions as a result of this weaker forecasted demand in the next 12 to 18 months?

I think in terms of the macro environment for renewable or sustainable fuels right now, the supply-demand imbalance creates pressure on those RIN credits which leads to lower utilization and deferral of investments. In terms of regulatory, I mean, there still are some issues to be resolved. The RFS, I guess the renewable volume obligation will be set post the election. So I think that could have a future impact on that. In terms of cost controls, we've already taken steps in July to remove costs from those impacted, I would say, underutilized units that are really concentrated in the Zeolyst Joint Venture.

And then just a question for Mike. You've indicated when you get below 3x leverage, eventually in the low 2s. What do you expect to be the balance of debt paydown? I know you said probably limited focus on M&A and repurchases for the balance of the year? And are there any discrete headwinds or tailwinds that will make cash conversion come in better or where some of your base is?

From a leverage standpoint, we expect to end the year based on our guidance of roughly 3x levered. We do expect our free cash flow to still remain strong. You'll notice that our free cash flow guidance is down, but not as much as what our EBITDA is. We still believe that we have strong cash generation and expect it to be higher than it was last year.

Our next question comes from Laurence Alexander with Jefferies.

So first, can we maybe look at the adjustments that you've made and separate out like the transitory versus structural? And as you think about what the baseline is for building the bridge for 2025 EBITDA, what do you think we should be using and the puts and takes there? And then secondly, given the discussions you've had with the customers at this point, can you talk a little bit about what the kind of revenue opportunity is over 4, 5 years now on both the SAF front and the recycling front?

We're not going to provide any updated guidance on 2025 but from a directional standpoint, we're certainly happy with what we've seen this year from a volume standpoint, particularly around the regeneration services. We do see growth in virgin sulfuric acid as we talked about. However, a little more cautious than earlier in the year but it's still a good growth component over the previous year. Our hydrocracking catalyst actually is doing well this year. It's not quite at the peak that it was in 2023 last year, but it is having a strong year, and we continue to see that being a positive into next year as well.

Mike mentioned a little bit about sustainable aviation fuel; we see that growth as we have said. With respect to advanced recycling, there are 12 units under construction. We expect an uptake in our products in that space to begin in '25 and '26 and going beyond. And I'll just circle back importantly on the Ecoservice side. All the products are going to have volume uptick year-over-year.

Please standby.

I just wanted to ask about what's going on with Zeolyst. The string comments you've been making, RIN has been coming down for more than a year. So what's different now? Is it the Zeolyst lost a customer? It just sounds all of a sudden that the RIN being an excuse just sounds a little off.

We have not lost customers in this space. We are a leading provider in dewaxing catalyst materials. However, our end customer, as we've stated, tends to be the catalyst technology provider for the renewable producers. Our view on this with RIN credits coming down over a sustained nature has led to long-term decisions where people are deferring investments as well as the catalyst life being impacted by low utilization rates, which is leading to slower sales.

As far as your cost management is concerned, how manageable is that? You're reducing costs, so when sales come back, do those costs come back as well? Or are you able to keep those permanent?

We'll look at that when those come back. We do have the ability to scale up. Essentially, what I mentioned before was the removal of the equivalent of a shift to the production sites that are affected. We would have the ability to scale that back, and it would just be a matter of at what pace that comes back.

We will take our next question from David Silver with CL King.

I guess the first question I'd like to ask would be maybe to get your view on the back half of the year in terms of the opportunities for your virgin acid product. I think the demand on that side has been weaker or hasn't really been exceptionally strong for a few quarters now. Are there new players that enter? Is this just the demand that you see falling away? Or is there something more complex here?

For the back half of the year, we do expect volumes of virgin sulfuric acid to be up year-over-year, and our EBITDA for Ecoservices in the second half of the year to also be up year-over-year. That said, the cautiousness in the overall industrial climate is making us cautious around our ability to capitalize on those marginal spot sales.

The second thing I'd like to ask is about the decision to redo and extend your term loan. Can you share your thoughts about why now was the right time to extend that?

There's certainly a bit of a question in the market around companies and their balance sheet. We saw this as an opportunity to go out into the market. Our bankers helped us guide through when the right opportunities might arise. We were able to do this at a relatively low cost, extending the term for 3 years and reducing our overall interest expense, as you mentioned, around $3 million a year. The NPV and the value of doing it was quite high.

Any thoughts from your side on your major capital outlays, and does the original timeline still make sense here?

The Kansas City investments are linked to customer commitments who are simultaneously constructing assets, and we do not have any intention of slowing these expansions at this time.

Thank you. We have no further questions in queue at this time. This does conclude the Ecovyst second quarter 2024 earnings call and webcast. Thank you for your participation.