Earnings Call Transcript
Ecovyst Inc. (ECVT)
Earnings Call Transcript - ECVT Q2 2022
Operator, Operator
Good morning. My name is Katie, and I will be your conference operator today. Welcome to the Ecovyst Second Quarter 2022 Earnings Call and Webcast. Please note, today's call is being recorded and should last about 1 hour. All participants are currently in listen-only mode to minimize background noise. After the speakers finish their remarks, there will be a question-and-answer session. I would now like to turn the conference over to Gene Shiels, Director of Investor Relations. Please go ahead.
Gene Shiels, Director of Investor Relations
Thank you, operator. Good morning, and welcome to the Ecovyst Second Quarter 2022 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 2022 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 on today's call with their corresponding GAAP measures can be found in our earnings release and in presentation materials posted in the Investors section of our website at ecovyst.com. Now I'd like to turn the call over to Kurt.
Kurt Bitting, CEO
Thank you, Gene, and good morning. We are extremely pleased with our standout results for the second quarter of 2022 as they reflect strong financial performance, solid operational execution, and continued progress in implementing our long-term strategies to deliver growth and enhance profitability. Ecovyst is a leading supplier of materials and services that are critical components in the delivery of sustainable technologies. Our regeneration services enable the refining industry's production of cleaner, more efficient fuels, and we are a leading supplier of virgin sulfuric acid, which is used in a wide range of industrial applications, including mining, advanced materials, and lead acid batteries. We provide Catalyst Technologies used in the desulfurization of traditional fuels, the expanding production of renewable fuels, the production of specialty polymers, and in clean air technologies, reducing air emissions from heavy-duty diesel vehicles. The relevance of these end markets today is translating into favorable demand trends. Looking to the future, we believe these demand trends will remain positive as the expanding need for low carbon and clean air technologies provides significant opportunities for Ecovyst. During the second quarter, we continued to benefit from these favorable demand trends. Building upon the positive momentum we established in the first quarter, we delivered outstanding financial results. Second quarter sales, including our 50% share in our ZI joint venture, were up 45% year-over-year, while adjusted EBITDA of $73 million was up 38% compared to the year-ago quarter. Inflation impacts from geopolitical uncertainty and currency fluctuations have posed a challenge to many businesses. Through our strong customer contracts and alignment to critical segments, Ecovyst is well positioned to mitigate and even benefit from these challenges. Of significance, while the adverse impact of inflation remains a primary concern for management teams and investors alike, Ecovyst's ability to mitigate the impact of inflationary pressures on our business has been a contributing factor to our strong financial results in the first half of 2022. The contractual price adjustment mechanisms in our Ecoservices business continue to provide for the pass-through of higher variable costs, including sulfur, natural gas, and transportation, as well as adjustments to account for inflation in labor and plant cost indices. In fact, in the current environment, we have continued to expand unit margins in our Ecoservices business despite significant increases in variable costs. While we do not have the same contractual pass-through provisions in our Catalyst Technologies business, prudent and forward-looking pricing actions continue to contribute to unit margin stability. Given our favorable financial results, the second quarter was another quarter of strong cash generation. Our ability to generate cash provides us with substantial financial flexibility as we continue to maintain a balanced approach to capital allocation. During the quarter, we made further progress in reducing outstanding debt and leverage, and we ended the second quarter with a leverage ratio of 2.8 times. In addition, our balanced and flexible capital allocation strategy and conviction in our results enabled Ecovyst to support shareholder value by repurchasing nearly $9 million worth of Ecovyst common stock. Looking more closely at key trends driving our business on slide five. We continue to have confidence in the near-term outlook for our business, and we believe longer-term trends also remain positive. For Ecoservices, we see continued strength in demand for Regeneration Services, which is critical in our refining customers' production of alkylate. High refinery utilization in alkylate production is supported by recovered domestic gasoline demand and robust demand for gasoline exports. In the US, premium gasoline continues to grow as a percentage of the overall gasoline pool. This is a function of higher octane requirements for the expanding number of higher-compression turbocharged engines in newer vehicles. While approximately 15% of a gallon of regular gasoline is alkylate, due to the higher octane specifications, alkylate concentration is as high as 45% in a gallon of premium gasoline. Additionally, more stringent emission requirements such as the EPA's 2020 Tier 3 emission standards are also contributing to higher alkylate demand, as many options to reduce sulfur content in gasoline result in an octane reduction that is typically rectified with the addition of alkylate. In the long term, we believe that the North American refining industry, which maintains a strong global competitive position, will continue to maximize alkylate production, thereby benefiting our Regeneration Services segment. Ecoservices is also the largest US supplier of virgin sulfuric acid, and we focus on high-growth industrial applications such as nylon and mining. We produced a wide range of specialty grade assets, enabling us to sell into applications such as lead acid batteries, water treatment, and semiconductors. With growing electrification needs, particularly in the US, we see the mining industry continuing to be an important and large consumer of sulfuric acid in leaching operations for copper, borates, and lithium. Included under the Ecoservices umbrella is our Waste Treatment business and the Chem32 Catalyst Activation business that we acquired in 2021, both of which we believe are positioned for attractive growth. Specific to Waste Treatment, we are a growing provider of liquid waste disposal services in the Gulf Coast region, where waste incineration in our furnaces provides our customers with a preferred disposal alternative to deep well disposal or landfill, which generally requires transport of waste over long distances by truck. The outsourcing of disposal to our sites, which are located in close proximity to our customers, also minimizes the risks and costs associated with hazardous material disposal for our customers. Of note, we benefit from the beneficial use of the inherent energy content in the waste streams, ultimately reducing our external energy needs at the plant site and enabling some customers to gain valuable waste exemptions. Our Chem32 business is an ex-situ provider of Catalyst Activation services. Ex-situ activation avoids time-consuming, on-site activation, reducing turnaround time. Consistent with the long-term trend of outsourcing by the refining industry, the Chem32 business is scalable and positioned for further growth, particularly as the production of renewable fuels expands. In our Catalyst Technologies business, our silica catalysts continue to play an important role in the production of polyethylene and plastic films in packaging. Polyethylene demand continues to grow. Ecovyst’s model of creating highly collaborative relationships with our customers to develop unique and customized catalyst solutions continues to be rewarded with a high win rate on new polyethylene capacity additions. This high adoption rate has allowed Ecovyst to outpace the general growth in polyethylene demand. Additionally, as the world transitions away from single-use plastics, we are partnering with industry leaders to develop and expand energy-efficient recycling processes for the production of durable and lightweight plastics. Our Zeolyst joint venture provides zeolite technologies that are essential for cleaner air and the production of lower-carbon fuels. To meet increasing regulations focused on clean air, our pressure products catalyst are used in the emission systems of heavy-duty diesel vehicles to reduce nitrous oxide pollution. Additionally, we have partnered with industry leaders to provide zeolite solutions for the growth and demand for renewable fuels catalysts. We believe that the proliferation of renewable fuels, including sustainable aviation fuels, will provide significant opportunities for Ecovyst over the next several years, not only for our Catalyst Technologies business, but also for the Ecoservices' Chem32 business. Ecoservices products and services will be critical for the growing adoption of sustainable technologies. Our Regeneration Services enable our refining customers to produce higher octane fuels required by today's more efficient automobile engines, while our sales of virgin acid support the production of metals and minerals that are essential in electrification, including the high copper content in electric vehicles and associated charging networks. Our catalyst technology supports and enables many green technologies, including the production of renewable fuels and catalysts used in emissions reduction systems on heavy-duty diesel vehicles. Our silica catalysts also facilitate the production of more durable and lightweight plastics, enabling greater energy efficiencies. As a result, approximately two-thirds to three-fourths of our sales today are associated with sustainable products and services. Moreover, our research and development programs are intently focused on meeting society's need for greener technologies as over 80% of our R&D spend is allocated to projects that tie directly to more sustainable technologies. We expect that percentage to increase to approximately 90% over the next three years. With that, I'll turn the call over to Mike Feehan for a review of second quarter financial results.
Mike Feehan, CFO
Thank you, Kurt. As Kurt noted, favorable demand trends in the first quarter carried over into the second quarter, setting the stage for our strong second quarter financial results. Total sales, including our 50% share in the Zeolyst joint venture, were $261 million, up $81 million or 45% compared to the prior year. Volume growth from product and service demand continued, primarily driven by higher virgin sulfuric acid and Regeneration Services in our Ecoservices business and higher polyethylene, hydrocracking and niche custom catalyst in our Catalyst Technologies business. We continue to benefit from higher pricing, which has more than offset higher variable costs, including sulfur, natural gas, and freight. Second quarter adjusted EBITDA was $73 million, up 38% year-over-year, with an associated margin of 28%. Turning to slide nine, I'll highlight the components of the adjusted EBITDA expansion compared to the second quarter of 2021. The increase in adjusted EBITDA was a function of higher sales volume as the demand trends continue in both of our businesses. Additionally, while costs have increased, we have largely been able to pass through these increased costs to our customers. As a reminder, the increase in average selling prices associated with the sulfur cost pass-through does not impact adjusted EBITDA, but adversely impacts adjusted EBITDA margins. While the adjusted EBITDA margin decreased 140 basis points, this reflects a 450 basis point impact related to the pass-through of higher sulfur costs. Thus, excluding the $37 million sales impact associated with the pass-through of higher sulfur costs, the adjusted EBITDA margin would have been 32.4% or a 310 basis point improvement compared to the second quarter of 2021. Turning to slide 10. Against the backdrop of robust demand for virgin sulfuric acid into a broad range of industrial applications and in light of high refinery utilization that is driving demand for alkylate and therefore, our Regeneration Services, it was an exceptionally strong quarter for Ecoservices. Sales of $193 million were up $72 million or 60% compared to the prior year. Adjusted EBITDA for Ecoservices increased 48% year-over-year to $60 million, driven by the benefit of higher sales volume and favorable pricing that more than offset the higher operating costs. The adjusted EBITDA margin for Ecoservices was 31.1%, down 240 basis points compared to the second quarter of last year. However, the pass-through of higher sulfur costs accounted for 840 basis points of the period-over-period decrease. Adjusting for the impact of higher sulfur pass-through, the adjusted EBITDA margin for Ecoservices would have been 39.5% for the quarter. Moving to the results for Catalyst Technologies on slide 11. During the second quarter, we saw positive demand trends with continued growth in silica catalyst sales, driven by polyethylene catalyst demand, and higher sales in our Zeolyst joint venture associated with the increased hydrocracking and niche custom catalyst sales. Second quarter adjusted EBITDA for Catalyst Technologies was $21 million, up 3.5% compared to the prior year, with the contribution of the higher sales volume, partially offset by unfavorable product mix and higher production costs. Moving to slide 12. A few comments on leverage and liquidity. Positive business fundamentals in the first half of 2022 and our strong cash generation have provided for leverage reduction of one full turn over the past three quarters. We are now at a leverage ratio of 2.8 times. We expect to be in the mid-two times by the end of the year, excluding any potential M&A or significant share repurchase activity. In addition, with total liquidity of $236 million at quarter end, comprised of cash on hand of $151 million and $85 million in availability under our revolving ABL facility, we have continued to have ample liquidity to support organic and inorganic growth initiatives and to fund share repurchase activity. Our strong liquidity position and our free cash flow generation capability provide a significant amount of financial flexibility, and this allows us to maintain a very balanced approach to capital allocation. With no scheduled debt maturities until 2028, we have the latitude to maintain investment and operational improvements and organic growth initiatives, as well as to consider accretive bolt-on acquisitions that have a clear strategic fit with our existing businesses, specifically opportunities that expand our technology portfolio or broaden access to the end markets we currently serve, similar to the Chem32 acquisition made last year. In addition, the $450 million share repurchase program announced in late April provides for opportunistic share repurchases, including negotiated transactions with our sponsors. We continue to believe that Ecovyst shares are significantly undervalued. As previously communicated, we will continue to look for opportunities to return capital to shareholders. As a result, during the second quarter, we repurchased 893,000 shares at a cost of $8.8 million. We believe this is a prudent use of cash and is in the best interest of our shareholders. Even with the repurchase activity, we ended the second quarter with a stronger balance sheet and an increased liquidity position. Turning to our full-year 2022 outlook on slide 14. In terms of overall demand drivers, as we saw in the second quarter, we expect industrial activity to continue to drive demand for virgin sulfuric acid over the balance of the year. Additionally, given high refinery utilization and associated alkylate requirements, we expect solid growth in Regeneration Services for the balance of the year. In Catalyst Technologies, overall demand trends remain positive. We expect continued growth in polyethylene demand to drive silica catalyst sales, and high refinery utilization remains a positive driver for hydrocracking catalyst sales. However, given high utilization and profitability for US refiners, we now expect some catalyst change-outs to be pushed to 2023. Despite these timing-related impacts, our outlook for Catalyst Technologies remains positive. Given the higher realized pricing trend, including the pass-through of higher sulfur costs, we have raised our full-year guidance for sales of $20 million to a range of $830 million to $850 million. Additionally, we're lowering our Zeolyst joint venture sales based on the timing of certain sales that we expect to be realized in 2023. Given strong first half results and with the view of demand trends remaining stable into the third quarter, we are raising our previous guidance for the full year 2022 adjusted EBITDA to fall in a range of $265 million to $275 million, with no change to our adjusted free cash flow generation of $115 million to $125 million for the year. For the third quarter, we expect earnings from both businesses to be relatively in line with what we saw in the second quarter. Then for the fourth quarter, we anticipate that Ecoservices earnings will be lower and more in line with the first quarter of 2022, while Catalyst Technologies will be up over the third quarter.
Kurt Bitting, CEO
Thank you, Mike. Summing it up, Ecovyst delivered very strong financial results in the second quarter. We expect the favorable demand trends we have seen in the first half of the year to continue into the second half of the year. Our long-standing relationships with blue-chip customers and sales contracts that include take-or-pay provisions and inflationary protection, as well as an order backlog, provides us with good visibility for near-term activity levels. As a result, despite geopolitical uncertainties and inflationary pressures, our full-year outlook remains positive, and we remain on track to deliver solid year-over-year growth in sales and profitability. I believe our results for the first half of 2022 and our full-year expectations underscore the conviction we shared during our Investor Day a little over a year ago. Specifically, that Ecovyst is uniquely positioned to deliver growth and compelling value to our shareholders. We have leading market positions, and we are a critical supplier to end markets where demand is increasingly driven by the need for sustainable technologies to provide cleaner air, renewable fuels, expand electrification, or facilitate the circular economy with more efficient processes for recycling plastics. We are successfully mitigating inflationary pressures through our contractual cost pass-through mechanisms and our pricing leverage, and we are generating strong cash flow providing for incremental debt reduction and an even stronger balance sheet, positioning us to capitalize on future growth opportunities. We look forward to providing you with updates as the balance of the year progresses. With that, we will ask the operator to open the line for questions.
Operator, Operator
Our first question will come from Aleksey Yefremov with KeyBanc. Your line is now open.
Unidentified Participant, Analyst
Hello, everyone. This is Ryan on for Aleksey. Thanks for taking my question this morning. So I guess my first question is just around share repurchases for the balance of the year and then into 2023. I guess how should we kind of just think about the potential timing when we might be able to see those?
Mike Feehan, CFO
Yeah. Hi, Ryan, this is Mike. I think what we've explained before is that, we entered into this or announced this share repurchase program that we're going to use for a couple of different purposes. We don't really have timing on exactly when we'll use it, but what we do want to articulate is that we're going to use it to help drive investor returns. We saw an opportunity, certainly with where the share price was trading in the second quarter and took an opportunity to buy back around $9 million worth of shares and then again, some additional shares going forward. So we don't have any direct plans, but we'll keep an eye out for when we think it makes the most sense, given our capital allocation strategy.
Kurt Bitting, CEO
Yes, I’d like to add that we firmly believe our stock is undervalued, which is why management bought shares in the second quarter. Additionally, we have a robust balance sheet that provides us the flexibility to invest our capital in ways that enhance shareholder value, and that is precisely what we did.
Unidentified Participant, Analyst
Great. Great. Thanks for the answer there. And then I guess just sticking with capital allocation. I know you've spoken about bolt-on M&A before. I guess, just my questions are, are you still seeing some attractive targets out there? And how are valuations faring at this time? Obviously, it's kind of bit crazy. Thank you.
Kurt Bitting, CEO
Yes. There remains a really good pipeline of bolt-on opportunities that we continue to watch. I mean, as we've talked before, the Ecoservices side has a large list of opportunities really because it's spanning more in the industrial and sulfur product side. And then obviously, the Catalyst business is much more technology-driven, which gives us the ability to look in a diverse group of Catalyst Technology. So we continue to explore in that area. And really our capital allocation strategies, as we talked before, gives us that ability to kind of do all of the above in terms of our stock repurchase fund, our really rich organic growth opportunities and continue to look at M&A.
Operator, Operator
Thank you. Our next question will come from John McNulty with BMO Capital Markets. Your line is now open.
John McNulty, Analyst
Thank you for taking my question. I have a question about the Catalyst Tech business and the delays you mentioned. I understand that 2023 was expected to show a significant increase. I'm curious if the delays from 2022 mean that 2023 will see an even larger impact, or if it indicates that some of the initiatives planned for 2023 might be postponed to 2024, extending the growth cycle. How should we approach this situation?
Kurt Bitting, CEO
Thank you for the question. We believe that high refinery utilization is currently influenced by strong demand and elevated refinery crack spreads. As refineries plan to conduct their maintenance, many have opted to delay these activities temporarily. This has resulted in some potential delays moving from this year to 2023. However, we don't anticipate significant changes to this cycle since refineries have limited flexibility. Additionally, running the refineries harder can lead to quicker catalyst depletion. Overall, what we are observing is primarily driven by high refinery utilization and crack spreads, along with refining customers choosing to operate at higher capacities while postponing maintenance for short durations.
John McNulty, Analyst
Got it. Okay. So it really just kind of compounds '23, if I'm understanding you right on that?
Kurt Bitting, CEO
Yes, that's fair. I mean, we see that, yes, '23 as having more changeouts, for sure.
John McNulty, Analyst
Got it. Okay. And then I guess there's a lot of questions around the macro and things potentially slowing. I guess, can you help us to understand how you guys are thinking about your playbook for any potential recessionary environment as it may pop up as we kind of get into the latter half of this year and early next year? I know, in general, you're pretty resilient, but are there certain levers that you would pull? Are there certain things that you would enact if things do get a little bit dicey?
Kurt Bitting, CEO
Sure. Well, so Mike and I have had the advantage of being with the Eco businesses for 15-plus years, and we've actually experienced the prior downturn. So we really believe that, as you said, the businesses would remain fairly resilient in a recessionary scenario. If you look at the Regeneration business, we feel that would remain strong due to the higher refinery utilization and minimal impact to gasoline demand. Similarly, on the virgin asset side, we don't think that would be significantly impacted because it services such a diverse group of end users, particularly those that are supporting low-carbon and sustainable technologies. So we don't see those slowing down. On the Catalyst side, for polyethylene catalysts, demand is projected to continue to grow, and we believe our unique catalyst solutions will continue to enable us to have a higher win rate with the new units that are planned to come on. Additionally, there's really a heavy backlog of heavy-duty diesel vehicles that was created by the supply chain issues over the past couple of years. So we feel that that's going to maintain real firmness demand for our zeolite pressure products. We feel we're going to be pretty resilient on the demand side. To answer your question on other things that we can do. I mean, we have that experience coming through a couple of these downturns. There are certain levers that we can pull where we can temporarily reduce costs or adjust our capital strategy.
John McNulty, Analyst
Great. Thanks very much for the color.
Operator, Operator
Thank you. Our next question will come from Angel Castillo with Morgan Stanley. Your line is open.
Stefan Diaz, Analyst
Hello, guys. This is Stefan Diaz sitting in for Angel. Thanks for taking my question. First off, what's driving the free cash flow guide? Is that just a function of higher working capital due to higher-priced inventory? Or is there any other specific trend?
Mike Feehan, CFO
Yes. I think for our free cash flow guidance, we didn't change it from the previous guidance. So we still feel very strong that our cash flow generation this year will fall in that range. We certainly see some strength in the businesses that are going to drive EBITDA growth. But we're being a little cautious on any dividends coming out of the ZI joint venture for some of those delays that we talked about with the changeouts and lowering the ZI guidance. We're very excited for our cash flow. We've demonstrated such strong free cash flow generation over the last several quarters. We talked earlier about how we delevered a full turn in leverage from 3.8 times at the end of September last year to 2.8 times. That's a lot of function of our strong cash flow generation and EBITDA growth. So we're very confident with our range that we have out there.
Stefan Diaz, Analyst
Perfect. Very helpful. And what do you see in terms of your order book thus far in the quarter, I guess, across both segments?
Kurt Bitting, CEO
Thank you for the question. As Mike mentioned, we are continuing to see strong performance in the Regeneration business for Ecoservices, which is being driven by high refinery utilization rates. Recently, the EIA reported that refinery utilization in Q2 was 92%, compared to 89% the previous year, largely due to very high refinery crack spreads. The virgin acid business also remains robust, with significant demand from sectors focused on sustainable and low-carbon technologies. We are seeing continued momentum in the polyethylene catalyst business, with four additional polyethylene units coming online in the US this year. Regarding Zeolyst, we have experienced some delays in hydrocracking orders due to strong refinery utilization, which is benefiting the Ecoservices business. Other segments from our Zeolyst materials continue to perform well, particularly pressure products for emission controls as we work through the backlog for heavy-duty diesel vehicles. Demand for renewables remains strong as well.
Stefan Diaz, Analyst
Thank you.
Operator, Operator
Thank you. Our next question will come from Laurence Alexander with Jefferies. Your line is now open.
Daniel Rizzo, Analyst
It's Daniel Rizzo standing in for Laurence. I would like to understand how we should consider pricing in the Catalyst business in a deflationary environment. If the market were to soften and some costs were to decrease, I am curious about the potential for price concessions and how quickly they might occur.
Kurt Bitting, CEO
No. Generally, the Catalyst business, unlike the Ecoservices business which has mechanical pricing adjustments, has forward-looking pricing. We implemented price increases at the end of 2021 and added energy surcharges. Therefore, in a deflationary environment, we do not anticipate a rapid decline in pricing as we have been very careful with our price increases.
Daniel Rizzo, Analyst
But the energy surcharges would roll off? And would that happen, I mean, relatively quickly?
Kurt Bitting, CEO
It would depend on the momentum of the energy. Currently, we don’t see the energy surcharges decreasing because natural gas and other inputs remain at high levels.
Mike Feehan, CFO
Yes. And just to add, I mean, those energy surcharges are really to cover the higher costs, right? So if those start going down and the pricing goes down, it wouldn't impact our earnings profile.
Daniel Rizzo, Analyst
Okay. You mentioned potential M&A bolt-on opportunities. I'm curious if that involves exploring adjacencies within Ecoservices or if it's primarily focused on increasing density, footprint, or market share.
Kurt Bitting, CEO
It encompasses all of the above. Last year, when we acquired the Chem32 business, it was clearly an adjacent business that integrated well with Ecoservice due to the sulfur chemistry applied to the catalyst for activation. It also aligns closely with the refinery service aspect of Ecoservices. To address your question, it could go either way. There are numerous adjacencies in the Ecoservices segment where sulfur is a key service component for refineries.
Operator, Operator
Thank you. Our next question will come from P.J. Juvekar with Citi. Your line is now open.
Patrick Cunningham, Analyst
This is Patrick Cunningham on for P.J. Good morning, everyone. So there seems to be some major tailwinds supporting the build-out of lithium and EV battery supply chain here in the US. So I'm curious to think of how are you thinking about this in your sort of medium to long-term growth strategy for virgin sulfuric acid? Are you looking to participate more in lithium? Or will this be more of a copper play? Thank you.
Kurt Bitting, CEO
We are currently heavily involved in the mining segment, with two locations on the West Coast and our Gulf Coast assets forming a triangle around the heavy mining sector. This sector is focused on copper, borates, and a bit of lithium. We recognize that there will be a strong demand for mining resources, especially lithium and copper, as well as other minerals necessary for low-carbon technologies. As this demand develops, we are continuously exploring debottlenecking opportunities in both production and logistics. Recently, we doubled our rail capacity at the Houston plant, increasing our ability to ship to this sector. As the sector grows, we will continue to seek opportunities to expand our production and services to meet this demand.
Operator, Operator
Thank you. Our next question will come from David Silver with CL King. Your line is now open.
David Silver, Analyst
Okay. Thank you very much. I had a question maybe about the guidance that you provided on slide 15. In particular, you increased the revenue guidance $20 million on each end for GAAP, but you did reduce it somewhat on the Zeolyst JV. So a couple of questions, but on the GAAP side, last quarter when you raised your GAAP sales guidance, you attributed it all to sulfur. This time, I'm just wondering how that incremental $20 million breaks down? Is that just merely more pass-through? Or does that represent an increase in demand? And then secondly, maybe just a comment on the reduced revenue guidance for Zeolyst joint venture. Thank you.
Mike Feehan, CFO
Yes. Sure, David. Thanks for the question. So on the sales side, we have seen some strong overall pricing, not just with the pass-through of sulfur, but we have benefited from some of the other inflationary aspects. We also see some volume strength as well. So a lot of that's built-in. We do anticipate perhaps that sulfur might be easing a little bit from a price standpoint, but it will really depend. As we've talked about before, whether sulfur goes up or down, it really doesn't impact our results, it just impacts the margin. So we're very, very comfortable that we're continuing to see strong demand resulting in higher volumes as well as strong pricing factors driving some of that. On the Zeolyst side, that lowering really has to do with what we talked about earlier with some deferrals and delays in some of our products that we see just going into 2023. But again, nothing that impacts our overall demand and strength in those markets. It's just more of the timing aspects that Kurt had articulated earlier.
David Silver, Analyst
Thank you for the clarification. I apologize for switching between multiple calls. My last question, mostly for Mike, pertains to the terminology and definitions. First, congratulations on achieving a net debt to trailing 12-month EBITDA ratio below three times, which I believe is a milestone for your company. Looking ahead, you mentioned balanced capital deployment, and I would like to further discuss that concept. There is the net debt EBITDA ratio, and then there’s the consideration of net debt or gross debt. I am curious about how you view balanced capital deployment concerning your overall debt. Specifically, will you be focusing on reducing net debt alongside share repurchase activities? Or is the primary ratio you're focusing on the net debt to trailing 12-month EBITDA? Thank you.
Mike Feehan, CFO
Yes. Sure, David, and thank you. Yes, we are very excited for the fact that we've gotten below 3 times. I think that's definitely a milestone for us. Again, as Ecovyst is different than PQ, it's becoming very evident in what we've shown over the last year. We're getting to the one-year milestone since we sold the chemicals business in a few days. The profile of Ecovyst is really strong, right? We talked about cash generation and the reduced leverage. To answer your question, the net leverage calculation includes cash, right? So we have about $150 million of cash on hand. Instead of using it to pay down debt, we want to keep it available as we start to deploy some of our capital allocation strategies. One of the things we talked about is potential M&A from a bolt-on acquisition standpoint, as well as participating in the buyback program, for which we started the process, but we may end up using it for some other aspects in the buyback, including private transactions and such with our sponsors, as we've talked about in the past. We want to maintain that cash on hand and use it effectively over the coming months and quarters. So we do look at net leverage as the right metric as opposed to paying down debt and then losing that availability to do some of our capital allocation strategies.
David Silver, Analyst
Very helpful. Thank you.
Mike Feehan, CFO
Thank you.
Operator, Operator
Thank you. Our next question will come from Hamed Khorsand with BWS Financial. Your line is now open.
Hamed Khorsand, Analyst
Hi. So first off, I just wanted to ask about your commentary on the catalyst business of product mix being unfavorable, and what that means? Is that just a one-time event? Or how do you manage that?
Mike Feehan, CFO
Yes, we view this as more of a one-time issue. The unfavorable mix is driven by customer products. We experienced a slightly lower margin than anticipated for the quarter. Nevertheless, we are optimistic about how the remainder of the year will unfold. There is significant strength in demand for our products, and we are seeing some relief from supply chain challenges, which impacted costs in this quarter and were more of a one-time expense. Moving forward, we are confident that the business will continue to grow. As I mentioned earlier, we expect a stronger second half for the Catalyst business, which is projected to improve as it progresses. We anticipate much stronger margins as well. So to address your question, it is primarily a one-time issue for this quarter.
Hamed Khorsand, Analyst
And could you just talk about the sales opportunity as far as being able to add customers? Is that still capability that you have right now in the marketplace from a competitive standpoint? And how do those renewals come up as far as being able to capture new customers?
Kurt Bitting, CEO
I spent my first 90 days as CEO visiting various Ecovyst sites. During these visits, I gained a stronger belief in the company's ability to innovate, execute our strategy, acquire new customers, and achieve long-term growth. In Ecoservices, we have the capability to continue improving our operations, not just in production but also in logistics. The Catalyst business is also growing, and our unique customized solutions, especially in the polyethylene segment, allow us to exceed the trend line growth in that area due to a higher adoption rate. Additionally, the strength in our market segments gives us the opportunity to negotiate more favorable terms as contracts with existing customers come up for renewal.
Hamed Khorsand, Analyst
Okay. Thank you.
Operator, Operator
Thank you. We have no further questions in the queue at this time. This does conclude the Ecovyst Second Quarter 2022 Earnings Call and Webcast. Thank you for your participation. You may now disconnect.