Ecovyst Inc. (ECVT) Q3 2026 Earnings Call Transcript

...for regenerated sulfuric acid. However, deferred maintenance may increase the risk of unplanned outages. For our sales of virgin sulfuric acid, we continue to expect sales into the nylon end use to remain stable for the balance of the year, with sales flat when compared to 2025. And for our sales of virgin sulfuric acid, Sulfur dioxide and derivatives into industrial applications and water treatment, we also expect stable demand through year-end. For virgin sulfuric acid specifically, although the Q4 Tampa sulfur index decreased $90 to $615 a ton, we remain cautious about the possibility of inventory management and destocking around year-end. Lastly, for sulfuric acid sales into copper and borate mining applications and sales of sulfur dioxide into gold mining applications, we see positive demand through year-end and beyond. As we conveyed last quarter, as a leading provider of products that are critical to our customers' processes, we continue to believe that long-term demand fundamentals remain positive, presenting compelling opportunities for EcoVist. I'll now turn the call over to Lori, who will review our financial results for the third quarter.

Thank you, Kurt, and good morning, everyone. Before reviewing the quarter, I'd like to say how pleased I am to have joined Equivist. Over the past couple of months, I've spent time getting to know our businesses, our people, and our opportunities. And what has stood out to me is the strength of our capabilities and customer relationships. I'm excited to work with Curt and the team to build on those strengths with a focus on disciplined execution, cash generation, and long-term value creation. With that, let me turn to our quarterly results. Turning to slide 7, key highlights for the quarter included higher volume for regenerated sulfuric acid and favorable pricing, with sales and adjusted EBITDA up year-over-year. Turning to the details in the third quarter on slide eight. Third quarter sales were $309 million, up $104 million, or 51%, compared to the year-ago quarter. The increase was driven by higher sales for both virgin and regenerated sulfuric acid, favorable pricing, the contribution from the Calabrian business acquired on June 30th, and higher average pricing associated with the pass-through of higher sulfur costs of approximately $67 million. Thank you. Adjusted EBITDA of $61 million was up over 6%, reflecting the volume and pricing dynamics contributing to the sales increase. These factors were partially offset by higher manufacturing costs, the impact of general inflation, and higher transportation costs. For the third quarter, the adjusted EBITDA margin was 19.8%, compared to 28.1% in the year-ago quarter. The decrease reflects the pass-through effect on sales of significantly higher sulfur costs. Excluding the pass-through effect of higher sulfur costs on sales of approximately $67 million, the third quarter adjusted EBITDA margin would have been approximately 550 basis points higher. Slide 9 provides an adjusted EBITDA bridge highlighting the primary factors for the increase in third quarter 2026. The pass-through effect of higher sulfur costs on sales was approximately $67 million in the third quarter. Excluding the pass-through, net pricing increased $5 million, and this was primarily associated with favorable pricing for both virgin and regenerated sulfuric acid. Higher volume contributed $15 million to the period-over-period increase in adjusted EBITDA. These factors were partially Offset by higher manufacturing costs. Higher turnaround costs and activity compared to the third quarter of 2025. Higher employee-related costs, including inflation costs, costs associated with the acquisition of Calabrian, and less favorable fixed cost absorption. Turning to cash and leverage on the next slide. Cash generation remained positive in the third quarter, with year-to-date adjusted free cash flow of $32.4 million. Recall that free cash flow generation this year reflects both higher capital expenditures associated with the ongoing expansion of our Gulf Coast storage and logistics and the working capital impact of significantly higher sulfur costs on inventory and accounts receivable. During the quarter, we maintained a strong liquidity position with available liquidity of $167 million at September 30th. Comprised of cash and cash equivalents of 71Million and availability under our ABL facility of 96Million dollars. Lastly, our net debt leverage ratio was 2.1X, essentially unchanged compared to June 30th, and this includes only 1 quarter for Calabrian for the trailing 12 month period. I'll now turn to our outlook and revised guidance for 2026. Sulfur prices continued to rise in the third quarter. However, we expect modestly lower sulfur costs for the balance of the year, reflecting a $90 decrease in the Tampa sulfur index from $705 per ton to $615 per ton. We still expect the full year pass-through effect of sulfur costs on sales to be approximately $220 million. Taking into account the positive demand and favorable pricing we have seen for the first nine months of this year, and factoring in the expected pass-through effect of higher sulfur costs, we now expect our full-year 2026 sales to be in the range of $1.05 to $1.07 billion, up modestly from our previous guidance of $1.02 to $1.06 billion. Reflecting our strong year-to-date performance, stable demand, and favorable net pricing, we are raising our full-year 2026 adjusted EBITDA guidance to a range of $208 million to $212 million, a 4.5% increase at the midpoint from our prior guidance range of $195 to $207 million. This outlook also reflects the shift into early next year of a turnaround previously scheduled for the fourth quarter with a cost of approximately $3 million. We are also raising our adjusted free cash flow guidance to a range of $50 million to $60 million, up from $45 to $55 million. Our expectation for the full year 2026 interest expense is now at $19 to $21 million. And we now expect capital expenditures to be $90 to $95 million, with the midpoint up slightly from a prior guidance of $85 to $95 million. Appreciation and amortization is now projected at $84 million to $88 million, up from our prior guidance of $80 to $84 million. We continue to expect our full year effective tax rate to be in the mid 20% range, and we now expect adjusted net income to be in the range of 70 to 85 million dollars, with adjusted diluted net income per share of 63 to 77 cents, up from 58 to 72 cents. As we move to the next slide, I'll provide directional guidance for the 4th quarter. Given the high refinery utilization that Kurt alluded to, we expect fourth quarter volume for regenerated sulfuric acid to be up compared to the year-ago quarter. While we expect fourth quarter virgin sulfuric acid volume to be lower than in the fourth quarter of 2025, this reflects a strong prior year comparison. When unplanned refinery outages reduced regenerated sulfuric acid volume in the fourth quarter of 2025, we were able to shift our capacity to capture attractive spot sales of virgin sulfuric acid. With refinery utilization running high this year, we expect that capacity to remain focused on serving our regeneration customers. Regarding our turnaround schedule, as previously noted, we are deferring the turnaround previously planned for the fourth quarter into early 2027. The projected cost of this turnaround was approximately $3 million. And as noted in the chart, we expect to execute six turnarounds at our sulfuric acid plants in 2027. Overall, for the fourth quarter, we anticipate adjusted EBITDA to land in the range of $54 million to $58 million. I will now hand the call back to Kurt for some closing remarks.

Thank you, Lori. We are extremely pleased with our performance this year. Demand trends have remained in our favor, and we expect that to be the case for the balance of the year and beyond. As we look forward, we see opportunities for growth driven by increasing demand in mining applications for both sulfuric acid and sulfur dioxide. We also see growth opportunities for virgin sulfuric acid across varied industrial applications as onshoring of industrial activity continues to increase. On the strength of our results thus far in 2026, and with confidence in the outlook for the balance of the year, we are raising our full-year adjusted EBITDA guidance yet again. Our updated adjusted EBITDA guidance of $208 million to $212 million represents a 4.5% increase at the midpoint relative to our guidance in early August and a 3% increase even after excluding the benefit of deferring a turnaround with an estimated cost of $3 million into early 2027. Just over four months into the Calabrian acquisition, the integration process remains on track, and in some areas we are ahead of schedule. We acquired a Calabrian team that is enthusiastic and engaged, and we remain excited about the potential for growth that Calabrian presents. Delivery of the expected synergies also remains on track, and we expect these synergies to translate into value creation for our stockholders. Our strong financial performance, liquidity, cash generation capability, and balance sheet continue to support a flexible capital allocation strategy focused on creating value for our stockholders. In 2026, we have demonstrated each element of that strategy, organic investment, including the expansion of our Gulf Coast storage and logistics, the accretive acquisition of Calabrian, and the return of capital through share repurchases. Following $2.7 million of share repurchases in the third quarter, we are further accelerating our buybacking activity in the fourth quarter with plans to allocate up to $20 million to opportunistic share repurchases in the second half of 2026, reflecting our confidence in the business and our commitment to delivering value to our stockholders. At this time, I will ask the operator to open the line for questions.

We will now begin the question and answer session. If you would like to ask a question, please press star 1 to raise your hand. To withdraw your question, press star 1 again. We ask that you pick up your handset when asking a question to allow for optimum sound quality. If you are muted locally, please remember to unmute your device. Please stand by while we compile the Q&A roster. Your first question is from Patrick Cunningham with Citi. Your line is now open. Please go ahead.

Hi, good morning. This is Alex on for Patrick. I guess, you know, if I look into next year, maybe how would you assess the potential of weaker refinery utilizations, you know, assuming lower oil price scenarios? And maybe just like, you know, if you have any views into your customer's turnaround schedules for next year.

Yeah, thanks, Alex. This is Kurt. So, you know, starting with the first part of that question, you know, our regeneration business depends on refining, you know, throughput, the demand for alkaline, and, you know, I would say the strong The strong demand for refined gasoline exports, which we expect to remain strong into next year and into the future, but I'll also say, you know, at the end of the day, our base, we have a base contracted business that where our core volume is really based on that alkaline value, which is not discretionary for the refineries. It's needed for the U.S. gasoline pool, it's needed for U.S. gasoline exports, and we will continue to believe that that will be the case going forward. As we look forward, we expect, you know, our, you know, regeneration business to continue to prosper through that. And that's been the case, right? As you've seen refining margins move up or down over the past, you know, four or five years, you can see our regeneration business and its margins have continued to expand despite whatever, you know, the refining margins have been or the, you know, the oil prices have been. In terms of refining customer outages, I would remind you that 2025 was a very heavy year for U.S. refining outages, and particularly for our customer base. You know, we're not guiding right now for 2027, but as we look at it now, we would expect that our customer base turnarounds will be slightly higher than they were in 2026, But not to the extent of anything that we saw in 2025. But again, I'll remind you, we are bullish on. The regeneration activity as it relates to alkylation in the future, as well as our contract structure, which has enabled us to continue to expand markets over time.

Thank you. And maybe for Laurie, what do you see as the biggest opportunities in maybe both the cash flow and cash deployment side?

Yeah, thanks for the question. I mean, one of the reasons that I joined the company is I'm really excited about the opportunities that we have going into this next year and the overall cash flow generation that we're seeing. As of right now, you know, we're assessing potential opportunities going into the next year. As we've continued to say, we'll always look at capital allocation in a very measured approach. I think key is investing in our base assets and making sure that they're operating effectively and safely, and we'll continue to look at other organic growth opportunities and potentially inorganic growth opportunities, but most importantly, looking at those that provide the most value and create the greatest shareholder return.

Great. Thank you very much. Your next question is from David Begleiter with Deutsche Bank. Your line is now open. Please go ahead.

Thank you. Good morning. Kurt, can you discuss some of the cost issues impacting 26 earnings and how they might become neutral to tailwinds next year to drive earnings growth? Thank you.

Yes. So, you know, there's clearly, there's been, you know, we see cost increases and inflation, you know, across many segments of the business, right? You know, first and foremost, sulfur, which we're passing through, our transportation costs. Which we largely pass to the customers, but then obviously our manufacturing costs and, you know, other costs associated with producing the sulfuric acid. You know, we've had, we have a good track record and that holds firm for this year of having good pricing power as contracts roll off, which we're able to, you know, raise our prices to keep ahead of those, of those. You know, headwinds in terms of a cost basis. Plus, as you know, David, our contracts are linked to inflationary indexes. So as those inflation indexes rise with the inflationary pressures, we're able to just really mechanically pass those costs through to our customers and continue to grow our margins over time.

Very good. And just on the virgin sulfuric side of the business, what's your outlook for volumes and volume growth next year in this business? Thank you.

Yeah, the demand fundamentals for virgin sulfuric acid remain very strong, right? So a lot of that, as you look at, particularly as you look at for sulfuric acid and then even sulfur dioxide now with our Calabrian acquisition into the mining segment, copper mining remains very strong. Now we've got a nice exposure to gold mining, particularly up in Canada, which is some of the richest. Gold reserves in the world. So our outlook for those volumes and demand strength is bullish there, right, as we see continued strong tailwinds in those segments, and really no appreciable new supply coming onto the market as well. Thank you.

Your next question is from Lawrence Alexander with Jeffries. Your line is now open. Please go ahead.

Good morning. This is Alfonso Savedal on for Lawrence. Thank you for the opportunity. I just wanted to ask for more color on the merchant sulfuric asset market, maybe what you're seeing as far as supply-demand balances. And then the second question is on the contracts that are set to roll off by the end of this year or this year. Anything you're seeing on the pricing side for those contracts as they're about to renew? So just those two questions. Thank you.

Thanks, Alfonso. Yeah, so again, I think the demand fundamentals for virgin sulfuric acid remain strong, particularly as it relates to our business in the mining sector, as well as, you know, other industrial applications as we see, you know, industrial activity being strong in our neck of the woods in terms of, you know, in the Gulf Coast and where we participate. And that, I would say, has translated to kind of blend in your second question. That's already translated into good pricing power for us, and you can see that as that was delivered in third quarter. We always have virgin sulfuric acid contracts that are rolling off at any given time period. They tend to be shorter term than the regeneration. And again, I think we expect The demand for virgin sulfuric acid to remain healthy going into the future. So we would expect positive pricing outcomes with those contract discussions.

Thank you.

Your next question is from Ahmed Korsand with BWS Financial. Your line is now open. Please go ahead.

Hey, good morning. I just want to understand that, you know, you're seeing this, you know, no maintenance or planned maintenance. Would this mean that there might be a little bit too much stocking of inventory going into Q1 of next year? And how are you thinking of inventory, given what, you know, the commentary you were talking about as far as what's happening in Q4?

Hi, Ahmed. I think the... Well, in terms of the stock, there's really not a lot of stock for virgin sulfuric acid or regeneration. The supply chains remain, you know, pretty tight. I mean, there's just not a lot of inventory. In the system. As we look to our turnarounds next year, we do see we're going to have an increase of one, as Laurie had mentioned in her comments, that we've moved one from this quarter to next quarter. But that being said, we expect that demand fundamentals in terms of regeneration and virgin sulfuric acid will remain healthy and will continue to expand margins. So does that answer your question?

It does. And then my other question was, any update as far as pricing is concerned, what you're able to pass on as far as any price increases for your contracts for 27?

Yes, I think we, you know, we, the pricing is, you know, that particularly, you know, we've got our regeneration contracts, as you know, are longer term in nature, as well as the virgin acid, which tend to be a little bit shorter. So, you know, we expect, you know, obvious every year there's more virgin sulfuric acid contracts that will tend to be renegotiated. We look at those, and the ones that have been renegotiated this year have been renegotiated as positive outcomes. You know, we view as if demand, as we expect, remains strong, and the demand fundamentals and virgin sulfuric acid, now I'll include sulfur dioxide in the conversation as well, if those remain strong as we expect them to into 2027, we would expect to have good pricing power as we move into those negotiations.

Okay, thank you.

As a reminder, if you would like to ask a question, please press star 1 to raise your hand. To withdraw your question, press star 1 again. There are no further questions at this time. This concludes today's call. Thank you so much for attending. You may now disconnect.