Good morning. My name is Jim and I will be your conference operator today. Welcome to the Ecovyst Third Quarter 2024 Earnings Call and Webcast. Please note today's conference 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 turn the conference over to Gene Shields, Director of Investor Relations. Please go ahead, sir.

Thank you, Jim. Good morning and welcome to Ecovyst's third 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, we will take your questions. Please note that some of the information shared today is forward-looking information about the company's financial and operating performance, strategies, 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 this morning's call with their corresponding GAAP measures can be found in our earnings release and in the presentation materials posted in 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. Against the backdrop of a challenging macroeconomic environment, Ecovyst's third quarter financial results were in line with our overall expectations. Our Ecoservices segment continued to exhibit resilience with positive demand fundamentals, contributing to another quarter of solid performance. During the quarter, high refinery utilization and attractive alkylate economics continued to support demand in our Regeneration Services business, where contractual pricing increases contributed positively to the segment's profitability in the quarter. Although demand remained soft in certain industrial end uses, third quarter sales volume for virgin sulfuric acid increased compared to the prior year. We also continue to see strong demand in our Chem32 Catalyst Activation business with volume also up year-over-year. In our Advanced Silicas business, sales of silicas used in the production of polyethylene increased in the third quarter and we remain on track for polyethylene catalyst sales to be up in 2024 compared to 2023. Within the Zeolyst joint venture, sales of hydrocracking catalysts were up in the third quarter. However, sales of specialty catalysts in the third quarter were lower than we had initially expected due to timing as we saw some sales slip from the third quarter into the fourth quarter due to minor logistical delays. Cash generation remained positive in the quarter, providing for a modest reduction in our net debt leverage ratio. As we turn to Slide 6, I'll provide an update on our near-term demand outlook. For Ecoservices, we believe the outlook remains positive. Taking into account planned seasonal turnaround activity for our refining customers, for the balance of the year, we expect stable activity for our Regeneration Services business. Looking forward, we continue to expect that high refinery utilization and favorable outlet economics will continue to benefit demand for Regeneration Services, particularly from our customers who operate some of the largest-scale refineries in the Western Hemisphere. Ecovyst regeneration contracts offer substantial earnings stability due to their long-term nature, cost pass-through mechanisms, and capacity reservation fees. Turning to virgin sulfuric acid, although we remain cautious about the potential for near-term weakness in the industrial demand to adversely impact sales, particularly for spot sales and sales under short-dated contracts, we continue to believe the long-term outlook for virgin sulfuric acid remains very positive. As one of the most widely used chemicals, sulfuric acid plays a critical role in a wide range of industrial and petrochemical applications and processes. Ecoservices' quality and robust network continue to make us a preferred supplier to leaders in a wide range of industrial applications including mining and the production of nylon intermediates. Chem32 and treatment services provide our customers with unique and high-value services, and we maintain a positive demand outlook for both segments. For Chem32 catalyst activation, we expect demand to remain strong through 2024 and we are seeing high levels of interest in activation services well into 2025. As we have discussed previously, we are taking steps to significantly expand our capacity at the Orange Texas site to serve the growing demand we see for ex-situ catalyst activation. Turning to Advanced Materials and Catalysts. For sales of polyethylene catalysts and catalyst supports, the weak global economy continues to constrain growth in global polyethylene demand. However, we remain aligned with major producers, both in the cost-advantaged US and Middle East. We remain positive on the long-term sales outlook for our polyethylene catalyst, given how our customized catalyst approach has enabled us to win key expansion projects in the US and Middle East. We expect sales growth for the full year as well as into 2025 and beyond to be supported by the ongoing expansion of polyethylene catalyst production capacity at our Kansas City site, which is on track for completion by the end of next year. The expansion is backed by firm customer commitments for expansion projects that are expected to ramp in 2026 and 2027. In addition, we continue to leverage our research and development capabilities to expand our advanced silicas portfolio for high-growth bio-catalysis applications. Customers continue to qualify our products for food processing applications with very positive feedback and we expect these qualifications to translate into additional sales in 2025. For the Zeolyst joint venture, we continue to expect that 2024 will be a strong year for the sales of hydrocracking catalysts although we do not expect to repeat the peak sales levels we saw in 2023. In terms of longer-term growth expectations, we continue to believe our technology is gaining market share as it offers refineries valuable production flexibility. For our sales of catalyst materials into sustainable fuel production, there has not been a significant change in market dynamics from the view that we shared with you in early August. We see the current low value for RINs and the adverse impact of inflation on construction costs continuing to weigh on near-term project economics for incremental renewable diesel capacity. Absent improved producer economics in the short term, we continue to expect weak demand conditions for catalyst material sales into renewable diesel over the next 12 to 18 months. In the long term, we maintain that the introduction of sustainable aviation fuel is the only viable near-term solution for airlines to achieve decarbonization. We expect that sustainable aviation fuel will begin to ramp up at the end of 2025 and the beginning of 2026. We believe our technologies for both dewaxing materials and decarbonization catalysts are well positioned as key enablers for the industry. For sales of emission control catalysts, our outlook has also not changed materially since August. Global sales for heavy-duty diesel vehicles remain depressed due to the weak macroeconomic environment and high interest rates. In addition, the deferral and implementation of more stringent emission requirements under Euro 7 has been delayed, which is another contributing factor to the weak vehicle sales. Lastly, we remain aligned with key players developing advanced recycling technologies working towards customer plant trials. With a solid technology offering, we believe we are well positioned for future growth. I'll now turn the call over to Mike for a more detailed discussion on our financial results for the third quarter.

Thank you, Kurt. Sales for the third quarter, including our proportionate 50% share of sales from the Zeolyst joint venture, were $210 million, unchanged compared to the prior year. Ecoservices sales were up approximately 4%, largely driven by higher volume of virgin sulfuric acid and favorable contractual pricing for regeneration services. Sales for advanced silicas decreased modestly, as the benefit of higher sales volume for polyethylene catalyst and catalyst supports was offset by the comparative timing of event-driven niche custom catalyst sales. Sales for the Zeolyst joint venture were lower, as higher sales of hydrocracking catalysts were more than offset by a decrease in sales of catalyst materials used in the production of sustainable fuels and emission control applications. Third quarter adjusted EBITDA was $60 million, compared to $68 million in the prior year, with the decrease primarily driven by the lower sales within the Zeolyst joint venture, offsetting the higher earnings from Ecoservices and advanced silicas. Moving to the next slide, I'll highlight the major components of the change in adjusted EBITDA. As we anticipated and discussed in our second-quarter earnings call, the unfavorable period-over-period net pricing impact in the second quarter associated with the contractual pass-through of energy and other index costs within Ecoservices is behind us. The price to variable cost ratio in the third quarter was positive with net pricing accounting for approximately $3 million, driven largely by strong contractual price increases for regeneration services. However, the lower sales volume of high-margin catalysts used in the production of sustainable fuels drove a less favorable sales mix within the Zeolyst joint venture, impacting adjusted EBITDA in the year-over-year period comparison. The balance of the change in adjusted EBITDA relates to higher costs, including higher planned manufacturing and maintenance spending within Ecoservices, costs associated with our reliability initiatives, as well as other costs, including certain employee-related costs. I'll now cover the highlights of our segment results starting with Ecoservices. Third quarter sales for Ecoservices were $154 million, up 4%. Drivers of the increase include higher sales volume for virgin sulfuric acid and favorable contractual pricing for regeneration services. Higher comparative volume for our Chem32 catalyst activation business was also a contributing factor. Third quarter adjusted EBITDA for Ecoservices was up modestly compared to the prior year as the higher volume and increased pricing was largely offset by higher manufacturing costs associated with inflation, increased planned maintenance costs, and costs related to our reliability initiatives, which have resulted in a marked increase in operational efficiency. As we've previously discussed, we expect the improved operational efficiency of our reliability program to translate into enhanced capacity and ability to serve growth in demand for our products and services. Moving to Advanced Materials and Catalysts. Third quarter sales for advanced silicas were $25 million, a slight decrease compared to the prior year. The modest decrease reflects higher sales volume for catalysts used in polyethylene production, offset by the timing associated with sales of niche custom catalysts. Our proportionate 50% share of sales from the Zeolyst joint venture was $31 million, down compared to the prior year as higher sales of hydrocracking catalysts were offset by the lower sales of catalyst materials used in the production of sustainable fuels and emission control applications. Third quarter adjusted EBITDA for the Advanced Materials and Catalysts segment was $11 million, compared to $16 million in the prior year, driven by the lower sales volume within the Zeolyst joint venture. As we move to cash and leverage, the third quarter was another quarter of favorable cash generation. For the first nine months of the year, adjusted free cash flow was nearly $60 million, compared to $20 million in the prior year, primarily driven by the timing of dividends from the Zeolyst joint venture and favorable changes in working capital. We ended the third quarter with approximately $123 million of cash and our available liquidity was $188 million, including availability under our ABL facility. Our net debt leverage ratio at quarter end was 3.2 times, down from 3.3 times as of the end of the second quarter. Based upon our expectations for cash generation for the remainder of the year and excluding any discretionary uses of cash, we expect to end the year with a net leverage ratio of approximately three times. As a reminder, our target net leverage ratio is between two times to 2.5 times. I'll now turn to our outlook for the fourth quarter and full year 2024. As Kurt noted, our third quarter financial results were in line with our expectations. And while adjusted EBITDA for the third quarter fell toward the lower end of our guidance range, this was largely due to the timing associated with specialty catalyst orders within the Zeolyst joint venture, with some sales shifting from the third quarter into October. For the full year 2024, we are maintaining our previous guidance ranges for GAAP sales of $700 million to $740 million, sales for our proportionate 50% share of the Zeolyst joint venture of $115 million to $135 million, and for adjusted EBITDA of $230 million to $245 million. As we have previously discussed, the sales of certain products within the Advanced Materials and Catalysts segment can be lumpy, as they are often large event-driven sales. Single orders of these catalyst sales can be large and the timing of when the revenue is recognized can be relevant to specific quarterly results. The range takes into account the lumpiness of our sales in Advanced Materials and Catalysts and acknowledges a range of outcomes in our virgin sulfuric acid and polyethylene business, given the current industrial demand outlook. In terms of the specific outlook for the fourth quarter, we see continued stability in our Ecoservices business. As such, our expectations for the full-year adjusted EBITDA for the Ecoservices segment remain in the range we provided in our second-quarter earnings call, which was $195 million to $205 million, and this would imply fourth quarter adjusted EBITDA of approximately $54 million at the midpoint of the guidance range. Last quarter, we also provided a full-year range for our Advanced Materials and Catalysts segment of $65 million to $70 million. Prior guidance incorporated our expectations for timing of certain niche custom catalyst sales with heavy weighting in the fourth quarter implying a fourth quarter adjusted EBITDA for the segment in the $30 million range. However, in light of continued uncertainty around the sales of catalysts used in the production of sustainable fuels and emission control applications and the timing of certain catalyst sales, full-year results for Advanced Materials and Catalysts could be slightly below our target. However, this would be largely offset on a consolidated adjusted EBITDA basis by favorability in corporate costs.

Thank you, Mike. I want to make a few comments on our safety and sustainability efforts. The responsible stewardship of our facilities and products is a core value at Ecovyst. During the past two years, Ecovyst has made significant investments in time and resources across our safety and environmental programs. These investments, along with the superb efforts of all of our Ecovyst colleagues, have resulted in top-quartile safety performance and our Platinum EcoVadis sustainability rating for 2024. I am confident that Ecovyst's hyper-focus on stewardship will continue to yield outstanding safety and environmental performance, which helps us retain a strong connection to our strategic plan and stakeholders. Finally, as we look to deliver on our financial commitments for 2024, our capital allocation focus remains on positioning Ecovyst for differential growth in the future and delivering value for our shareholders. As such, we are continuing to implement the strategic plan we outlined last year in our Investment Day. We continue to see compelling opportunities across our businesses to strengthen our portfolio and improve the resiliency of our earnings. Consequently, we are investing to capture these organic and inorganic growth opportunities. We are currently investing in the expansion of our polyethylene catalyst production capacity at our Kansas City site and the expansion of our catalyst activation capacity within Chem32. Both projects remain on budget and on target to support expected future growth in demand. In addition, the reliability initiatives within our Ecoservices segment that we outlined in our Investor Day last year have already resulted in significant increases in our operational efficiency. As we have discussed, we expect these initiatives will provide for overall improvement in plant operating rates and therefore expanded capacity to serve expected growth in demand for both virgin sulfuric acid and for regeneration services. We also remain interested in inorganic growth opportunities that would closely complement our existing businesses, provide attractive synergies, enhance our capacity and capabilities, and increase our earnings resiliency and growth profile. Ecovyst's ability to generate cash provides long-term investment potential in both organic and inorganic opportunities. As Mike mentioned earlier, a primary goal of our current capital allocation strategy is to reduce our net leverage ratio to a target range of 2x to 2.5x, thereby enhancing our balance sheet flexibility to capture future growth opportunities. In summary, we remain intently focused on growth and value creation for our shareholders. We see compelling opportunities across our portfolio, and we believe the strategic plan we have outlined will allow us to deliver on our growth expectations. Thank you. And at this time, I will ask the operator to open the line for questions.

Operator instructions.

Hi, good morning. Just curious on your early thoughts for 2025, both from an end market standpoint. And then you mentioned a lot of things in terms of items in your control, whether it's benefits from the reliability program, capacity additions and potentially some add-backs from maintenance costs you incurred in 2024. So maybe just both in terms of the market setup as well as items in your control.

Yes. Thanks, Patrick. I think we're not really guiding here for 2025. But as we look at the overall landscape, Eco Services continues to operate in terms of our regeneration services at a high utilization rate. So we expect volumes to remain strong there, as well as when contracts roll off and we reprice them, we expect continued pricing power in that segment. Virgin sulfuric acid has shown some pockets of weakness in certain industrial segments. On balance, it's operating really as we expected. And globally, the reported virgin sulfuric acid prices have risen here in the last six months, and we would hope and think that continues into 2025. For Advanced Materials and Catalysts, we continue to offer high-value products to our customers that deliver customized polyethylene solutions for some of the largest producers, and we expect that will continue.

Got it. And then 4Q guide was very helpful. It does imply somewhat of a healthy step-up, but I think you called out the catalyst order timing being the biggest part of that. Is there anything else in terms of flow-through of price cost in Eco Services being a big component, potentially offsetting some seasonality there? Just wondering why we're flat in a seasonally weaker period on the Eco Services side.

Yes, Patrick. For Eco Services, traditionally we see that the first quarter and the fourth quarter are usually a little lighter than the second and third. So actually having an implied guidance range of 54, that would represent a 10% increase compared to the prior year. The balance for the fourth quarter for Eco Services is going to be relatively in line with our expectations. And on the AM&C business, we do expect polyethylene to be up year-over-year as we've discussed previously. Hydrocracking was a significant component in the fourth quarter of last year, but that will be largely offset by the polyethylene increase year-over-year along with some other custom catalyst sales that we expect to see in the fourth quarter.

Thank you. Good morning. Kurt and Mike, on the leverage, do you expect to be at your leverage target by the end of 2025?

Yes, David, we are expecting, as we said, to have good cash generation this year. So our free cash flow guidance has a midpoint of $80 million, which would be an increase compared to the prior year. We do expect to end the year around three times leverage. We're not giving specific guidance into next year. But in the past, I would say that we've talked about being able to delever about 0.5 turn a year. Our target range of two times to 2.5 times would be within reach if we continue down that path and generate a solid amount of free cash flow each year.

Very good. And just in Q3, what was the impact from Hurricane Beryl in the quarter?

The impact was a few million dollars. So it did impact the results but not quite as materially as some of the other hurricanes and weather events that we've seen in the past, particularly in early 2023.

And just lastly, thinking about the bridge to 2025 beyond Beryl, any other one-off impacts you could call out that would help bridge to growth next year?

Yes. The one other thing, and Kurt talked a little bit about the end markets and the drivers of growth. We talked about having a higher step-up in some of the costs in Ecoservices, particularly around the reliability program and the higher turnaround costs. That would have been a step-up, and you wouldn't see that same increase going into next year. However, we do continue to maintain higher costs in that business for reliability and turnaround, as well as inflation and keeping our maintenance costs at a relatively appropriate level for future growth in that business. As we discussed, that reliability program helps add capacity, supporting growth for many years.

Thanks. Good morning, everyone. I just wanted to stay on the subject of the reliability program and clarify something. I think you mentioned that you're happy with how this reliability program is performing thus far and you see the benefits. Are these benefits more in the potential capacity when demand improves? Because if I just look at EBITDA, it's sort of hard to see it right now. Maybe you can explain.

Thank you for the question, Aleksey. Our reliability efforts have shown a year-over-year improvement from 2023, which has helped us increase our virgin sulfuric acid sales. However, there’s still work ahead. This is a long-term initiative involving additional reliability teams, improved maintenance schedules, and automation for reliability modeling. Over several years, these combined efforts will gradually increase our sulfuric acid capacity, enabling us to leverage high operating efficiency and generate additional EBITDA. We believe that as time passes, the extra capacity resulting from the reliability program will align with the increasing demand for virgin sulfuric acid in the long run.

Yes. Thanks for this explanation, Kurt. And I guess next year, again based on what you said in the prior two questions, I'm assuming you would expect Ecoservices pricing to be up. If you could confirm if that's the case? And also, if that price increase would be higher than the increase in cost excluding the pass-through.

Yes. Alex, that's a good question. I mean, I think we're not providing real specific guidance for next year. However, the pricing mechanism within Ecoservices is quite strong with the long-term nature of some of the contracts and the ability to reset the base price when those contracts run out. We'll continue to see growth both on the volume and pricing side, so we do expect growth next year and over the coming years as part of our long-term strategy.

Yes. Thanks for taking my question. So on the catalyst for sustainable fuels, obviously things have taken a step back. Are there things you can do from a belt-tightening perspective that you're considering at this point? Because it does sound like this is something that may not recover in the next year or next couple of years based on at least some of your commentary. Can you help us to think about maybe some of the levers you can pull to help with the profitability around that particular part of the platform?

Hi, John. Thanks for the question. As we said on the call, our position on sustainable fuels hasn't changed. We still view that as a 12- to 18-month timeline on recovery, just because of the supply-demand imbalance currently existing in the marketplace. I would point out that in Q2 and Q3, we did do cost reductions at our Advanced Materials and Catalyst facilities, addressing costs particularly at the North American level, but we are limited in what we can do since many of the assets are fungible with other catalyst products that are non-renewable, which they all make similar intermediates. We've already taken a strong approach to that in Q2 and Q3, and that is starting to roll through.

Got it. Fair enough. And then I guess just a question on cash and leverage. Your leverage is improving. I know you're not at the targets that you want to get to, but your cash balance on the balance sheet is actually getting pretty chunky at this point, over $125 million, and it looks like it should go up even more in Q4. Can you speak to the use of that cash? Do you see M&A opportunities starting to materialize? I think a lot of assets were off the market for a while, but it does seem like in some areas, we're starting to see them come back. Do you see a pipeline getting fuller in your mind? Or is that not something you're really considering at this point just given the leverage?

Sure. That's a good question, John. In the past, we've maintained a flexible capital allocation strategy, including share repurchasing while we delevered, having leverage as a key priority. As outlined in our Investor Day and what we said on the call today, we’re focusing our capital allocation on growth and maintaining that balance sheet flexibility to fund that growth. We believe this is the best way to deliver long-term shareholder value. We have good organic growth opportunities that we want to continue to fund, and we remain interested in inorganic growth opportunities, which I would characterize as bolt-on in nature to complement the existing business, adding resilience and strengthening our future growth potential. In terms of availability, it was slow over the last 12 to 18 months, but I think the activity will likely pick up.

Hi. Good morning. This is Kevin Estok filling in for Laurence. My first question is about understanding how demand might respond to rate decreases. I’m interested in how you anticipate demand could change if rates were to drop by 100 basis points in 2025. Are there any early signs of improvement that you’re noticing?

Sure. I think in terms of rate cuts, for most of our customers, especially in refining and petrochemical, they are already very advantaged on a global basis from an energy perspective, which is probably more impactful to them than the rate cuts themselves. As for demand, our virgin sulfuric acid sales will be up year-over-year this year. One segment, nylon, is expected to be up year-over-year, albeit not at a banner year level, but still historically lower. Mining remains strong, as you've seen, with metals and other materials maintaining high pricing and demand. In general, refining remains robust with high utilization rates. Output is always considered liquid gold within the refining industry, which always has a strong demand push behind it. In terms of virgin sulfuric acid, while we’ve talked about weaknesses in certain industrial segments, it's a diverse product with good demand in many areas. For our Advanced Materials and Catalysts, we've mentioned catalysts for renewable fuels, but polyethylene demand growth is still projected to be 2% to 3% per year, aligned with major producing cost-advantaged regions like the U.S. and Gulf Coast. While hydrocracking sales haven't peaked this year as they did in 2023, we are still gaining share in that space and using our zeolite technology.

Sure. Sustainable aviation fuel is a highly attractive market for both producers and supply chain partners. It is the only viable means to decarbonize airline travel. We believe our zeolite technologies, whether dewaxing materials or isomerization catalysts, are well positioned to enable that industry. We expect pilot scale sales to begin towards the end of 2025 and this starting to ramp in 2026, as certain mandates become effective, particularly in the EU which will impose a 2% mandate starting in 2026. Whether mandated or consumer-driven, we believe SAF demand will come into play in the U.S. and beyond starting in 2026 and through 2030.

Hi. Good morning. My first question was about the level of conversation you're having with refinery customers, given that they're publicly talking about crack spreads declining and their utilization rates hovering around 90% right now?

Good morning, Hamed. We have very close relationships with our refining customers, and in many cases, we have data feeds to their actual consumption of sulfuric acid in terms of their Alkylation units and how they run. Alkylate remains valuable in its position in the gasoline pool. Even as we see overall utilization rates ticking down, particularly related to maintenance or crack spreads dropping, generally they will want to lean into their Alkylation units even harder since it's an area of significant profitability for them. Our outlook on Alkylation has remained strong due to the favorable demand push and the economics surrounding it.

Okay. And then you've had some significant one-time issues in the last year and this year. Is 2022 a good baseline to compare for 2025, exiting out the Zeolyst joint venture?

Every year has its own challenges, right? 2022 had favorability in some timing items and others. For example, hydrocracking had peak years in 2023 but was lower in 2022. We also had favorable pricing driven by some indexation in Ecoservices that we wouldn’t see going forward. So it's a mixed bag.

We have no further questions in the queue at this time. This does conclude the Ecovyst Third Quarter 2024 Earnings Call and Webcast. Thank you for your participation. You may disconnect.