High-yield Chemicals and Paper and Packaging sectors at Bank of America, and I'm pleased to host a fireside chat with Ecovyst Head of Investor Relations, Gene Shiels, and Treasurer, Nate Connor. Over the past few years, Ecovyst has made a substantial transformation from PQ Corp, including the $650 million sale of Performance Materials, aka Potters, to the Jordan Company in December 2020, the $1.1 billion sale of Performance Chemicals to Cerberus and Koch Minerals in August 2021. Ecovyst now reports in two segments: Ecoservices, which includes sulfuric acid regen services business, which basically sells strong acids, which weakens in the customer's process. Customer returns it, the weak acid, to Ecovyst to restrengthen it and resell it, this regen acid to the customer. Then Catalyst Technology which manufactures catalysts for the manufacture of polyethylene and methyl methacrylate, the monomer to make PMMA, which is often known as plexiglass, and the Zeolyst JV with Shell, which manufactures hydrocracking catalysts used in refineries among other catalyst products. As a reminder, this session is being webcast, and as we go through the fireside chat, if you want to ask a question, let us take a moment and get a microphone to you so that you know, they can hear on the webcast to ask your question. Again, thank you very much for coming here this morning and joining us, and maybe I'll start it off. Your 2023 EBITDA guidance of $260 million implies a, you know, $1 million year-over-year increase in Q4 2023, while you were down $17 million in the first nine months of 2023. Can you speak about the drivers for this? Yeah, Roger. F irst, I want to thank you and Bank of America for having us at the conference. It's always a great conference, so we appreciate it. It's been a little bit of an unusual year. You know, I'd say for us, if you look at a lot of the end use exposures that we have kind of across the board. F or us, they've held largely over the course of the year. We have seen, as we talked about a little bit of weakness in the nylon end use and the polyethylene end use. But the biggest drivers, I think, this year for us have been sort of of an operational nature. We had an impact with Winter Storm Elliott, which occurred in the fourth quarter of last year, but in advance of a planned turnaround in the first quarter of this year, you know, we were going to build inventory to kind of carry us through this significant turnaround. And not being able to build that inventory, the sales of virgin sulfuric acid in the first quarter were lower. We also incurred, you know, repair and maintenance costs. And as we got into that turnaround in the first quarter, we found we had a little bit more maintenance required on a boiler so that the turnaround was extended. So, the third thing that impacted us, we had an operational restriction and then downtime in our Dominguez, California facility. We had a rotating component on the main gas blower, which had been repaired, actually replaced in May of last year, should have a life of eight to 10 years and it failed. So we had to take the plant to lower operating rates which impacted the volume production of virgin sulfuric. T hen ultimately, we had to take the plant down and replace that component. So we had, in this case, repair costs. We had higher networking costs as we were kind of moving things from our other plants to serve customers. So in sum total, if you take those three operational items, which, you know, we believe are kind of one-time in nature, you know, from an EBITDA perspective, you know, that's $20 million-$25 million of EBITDA impact this year on operational issues. We're pleased with how most of the, you know, the demand fundamentals have been across the board, in the other end uses other than nylon and polyethylene. Got it. Thank you for that. So for the first nine months, you had a $22 million price variable cost spread expansion. Can you speak about how you were able to achieve that good result? Well, I think it speaks to the unique nature, first, of the Ecoservices business, where we have over the years developed a contract structure with pass-through and indexing, you know, mechanisms in there. So things like transportation cost and sulfur costs are a direct pass-through, dollar for dollar. And then we have indexation on things, like, you know, labor costs and natural gas and plant operating costs. And the other feature is that, you know, these are long-term contracts and in a lot of cases, five-eight-year type contracts. And so every year we have, I don't know, 15%-20% of these contracts that'll come up and roll, and the pricing reset on those contracts is fairly significant. We've always talked about it as a part of the overall growth for Ecoservices. There's a little bit of a volumetric component, and then there's the overall pricing component that plays into that growth. If you kind of look at our Advanced Materials & Catalysts segment, you know, the pricing is really a function here again of long-term contracts, n ot the same as Ecoservices, three to five-year contracts. W e've set the pricing and the pricing has been pretty attractive. So you're basically saying it's just natural as the contracts turn, you grab more spread? Yeah, you- You're able to do that. Well, for Ecoservices specifically, yes. You know, it's pretty high utilization in the regeneration industry. And so, yeah, there's attractive pricing power in that business when these contracts roll. Got it. What about in the ZI JV and silica catalyst, when those turn, it's a different dynamic? How does, you know, how would you describe those dynamics when those contracts turn? Yeah, it's, I mean, there's more of a price for value in those contracts. Mm-hmm. But you do anticipate, you know, things like energy cost and the like- Okay. ... which you try to build into the repricing of those contracts. I don't know, Nate, if there's anything else. It's, that is correct, Gene. And when Gene mentions price for value, we work very closely hand in hand with our customers to develop their catalysts. Sometimes we're brought in even before they design the reactor, in some cases, for their polyethylene catalysts. So as we're specced in on the front end of that process, and given the cost component of our catalyst in the end product with our partners, it's fairly easy to pass along those inflationary pressures and offset them when contracts renew. Got it. Thank you. And then, how much were your volumes down in year-to-date 2023 for the, you know, for the first nine months? Yeah, unfortunately, we don't, we don't disclose sales volume per se. I will tell you, the majority of the volume decline was in the virgin sulfuric business. A nd it was driven by the operational, you know, one-timers that I talked about. Volumetrically, the regeneration business was less impacted. It was mostly the virgin sulfuric. Okay, so a lot of chemical companies have been seeing a lot of customer restocking. It doesn't sound like you were saying that. The virgin acid was an operational problem. It doesn't sound like there was much of an issue with the regen acid. What about your other businesses? Were there any destocking that you saw? Yeah. So, so I think to your point, Roger, from a regeneration services, the demand fundamentals have been strong there. In our virgin acid, there's also strong demand in the virgin acid. Unfortunately, our operational issues led to some slight volumetric declines there, but those underlying industries are strong. We have, throughout the year, seen some destocking in our silica catalyst business associated with those products that go into polyethylene production. We believe that was largely due to the fact of really some of the supply chain issues we saw out of COVID, as our producers increased their inventories. Now, as we're seeing some weakness in those polyethylene and nylon markets, those inventories are coming down. You know, I think we feel like we've seen a bottom there- Okay. ... from a destocking standpoint. B ut, we're closely kind of watching the first half of next year, especially in polyethylene. And then, in PMMA catalysts, right? There are some Western producers who've had, who have struggled versus China, particularly European, certain European PMMA producers. Have you seen lower demand in PMMA? Or maybe the answer is: Well, it was just one or two guys with certain processes that were disadvantaged versus China, and you weren't really exposed to those particular customers. Yeah, I don't think we have seen a major change in the market. The reality of that business is the sales for us are event-driven. S o it's not linear through a year, and t hird quarter is a perfect example, as we talked about. We didn't have any of these event-driven sales in the third quarter this year, but third quarter of last year that we did. So it's just kind of a lumpy business in terms of the sales. Okay. Street guidance has, at least when I wrote this down, 2024 EBITDA of $283 million, median, mean, $285 million median, a little bit bigger range, $262 million-$294 million on seven estimates, which is a reasonable number of estimates. By the way, this is on the, from Bloomberg- Yeah. ... is where- Sure. ... we get our estimates. You haven't given, unless you gave it yesterday and I didn't see it, the 2024 EBITDA guidance. B ut what would be the drivers for this performance improvement over 2022 and prior years? Would you be looking for spread expansion, volume recovery, other drivers? Yeah. So, we haven't given guidance yet. S o these are, you know, these are third-party sort of estimates. What I would say if you kind of start off with the one-timers, you know, we wouldn't expect those to recur next year. There's a big question mark, you know, in terms of the macroeconomic market. You know, how do we see things going into the first half of next year? You know, are things picking up or... But I'd say by and large, back to my earlier comment, you know, we're pretty pleased with the demand fundamentals across the majority of the end uses that we serve. We do look forward to a little bit of recovery in the polyethylene market, which would be good for the sales of the silica catalyst. You know, a little bit of a recovery, you know, in the nylon market, which would benefit our virgin sulfuric sales into the producers of the intermediates going into there. But on top of that, I would say we would continue to expect, you know, positive pricing and back to the pass-through mechanisms that we have in the Ecoservices contracts. I mean, if you look at refinery utilization, I think, you know, the expectation is that it remains high. So that's a positive for our regeneration business. I don't know, Nate, anything else to add? Right. The only other thing I would add is our internal continuous improvement or debottlenecking- Okay. -processes. Um. Okay, so I'm hearing the quick benefit of the non-one timers, which I think you kind of said was $20 million-$25 million. Some recovery in PE and nylon, some pricing and cost savings will be the main drivers. Well, we look forward to recovery. I can't... You know, we don't know when that's gonna be. Hope, hope, recovery. Hope. Yeah, fair enough. You know, it's true. Yes. In any year, you have puts and takes. Right. You know? Sure. Right. Some things are up, some things are down. We kind of see how things shake out. But generally, we feel, you know, pretty comfortable in the end use exposures that we have. Got it. Thank you. So, just going a little further deeper, what drove the EBITDA uplift in refining services in 2022 and 2023 and in prior years? You had a nice uplift. What-- Looking back, what would you say is, was the main driver was that? And was that in... I mean, we talked earlier, maybe that's, this is the answer. It's just, "Hey, the contracts turn over, in the, in, you know, and you get the benefit. Yeah. So I wanna make sure I understand. When you say uplift, are you, are you referring to EBITDA margin or, or- I was just talking about EBITDA, though I, I guess I could have checked the EBITDA margin- Yeah. -but. Well. S o 2021 - 2022, you know. I n 2022, we added a new customer. A t the end of 2021, that benefited 2022. These pass-through mechanisms and the indexation, particularly in a year like 2022 where inflation was very high, that was a benefit to us as well. So that and pricing. So all of those things were a factor if you look at the progression from 2021- 2022. 2022 - 2023, you know, for the regeneration business, it's been pretty good. But again, for Ecoservices as a whole, I have to go back to we've had lower sales of virgin sulfuric, so that's gonna have an EBITDA impact. Okay. Yeah. Got it. Then, how is your business positioned to benefit from the growth in renewable fuels? Yeah, this is a market that we're really excited about because we have exposure really in two different areas for renewable fuels. First, within Ecoservices. T he Chem32 business that we acquired is doing a lot of ex situ activation for the catalysts that are going into renewable fuels. And we see that continuing. And we talked a little bit yesterday at our Investor Day about capacity expansions that we have planned for the Chem32 business to kind of meet that increasing demand. If you go over and then look at what we have in the ZI Joint Venture, we're selling catalysts today into the renewable fuels. When I say renewable fuels, I'm talking about renewable diesel and the emerging sustainable aviation fuel. We sell catalysts through the ZI Joint Venture that are used in the dewaxing side of that process today. So it's, you know, it's been a business where if you kinda look at the volume of the fuels that are being produced. I t's growing, like, 20% a year. So, you know, we see that continuing for quite some time. Yeah. It was nice, we saw yesterday in, I think it was reported Virgin Atlantic sent the first transatlantic- Right. -flight on 100% sustainable aviation. Last week, Gulfstream, I think debuted their new G800 on a flight on 100% sustainable aviation fuel. So we think it's a big growth driver. We're really excited about it. Yeah. Excellent. In silica catalyst, sort of, what are the factors that are keeping EBITDA on a rather tight range? And what can drive this business up? Well, when you say a tight range, you know, when you look at silica catalyst overall back to what I said earlier about the you know the methyl methacrylate and the catalysts that are sold into that, that's kind of a lumpy business. But if you look at what we've been doing in the polyethylene market, over time, you know, polyethylene demand globally grows at 3.5%. 3%-4%- ... 4% a year, and we've been kind of growing at almost 2x that rate. And it gets back to, as Nate said earlier, we have a customized solution that, you know, once you design your, your asset, your reactor around that catalyst, it's a very sticky business. And we've been very well represented in a lot of the new capacity additions that have come in in North America and the Middle East. But we also back in September, I believe it was announced an expansion at our Kansas City plant that's gonna increase the production capability there by 50%. And this is backed by long-term customer commitments for polyethylene. So this is one of the things that gives us a high degree of confidence that, you know, the polyethylene demand continues to grow. We like our regional exposure there. As Gene mentioned, our polyethylene exposure is largely North America and the Middle East. So it's those lower cost advantaged producers versus, say, exposure into Europe or Asia. Got it, and that clearly must have helped over the past few years in terms of having that 2x industry volume growth. But how is that sustainable going forward, that- Yeah. -that extra growth? Yeah, we believe it is. B because, you know, today in the polyethylene markets, with these new capacity expansions, the customers are looking for not only specific yield characteristics but end product characteristics. Mm-hmm. And so that's why we are working with them, you know, on the very front end, designing the catalyst to give the specific properties that, that they're looking for. And it's a very sticky business because I just remind everybody, in polyethylene, the catalysts are consumed in the production process, so it's kind of an annuity business. Once you- Yeah. Once your licensor says, "You know, we're going to guarantee this product quality and this type of yield, but it's contingent on use of that catalyst. Just thinking, it hit a number of years ago, you know, polyethylene in North America and probably Europe were tended to be higher performance than those that came out of the Middle East. The Middle East used to be more commoditized. They used to go to more to Asia, where they used to want more commoditized resin. So given your catalysts, are you still seeing that, that the Middle East tends to be more, more relatively commoditized grades of polyethylene? Or has that moved up, and it's not terribly different from, you know, the more, you know, quote-unquote, "sophisticated" grades that you see in North America and/or Europe? Yeah, I don't know that I would characterize it as entirely commodity because while I can't tell you the customer names, you know, some of the customers that we're working with, particularly in the Middle East, are some of the industry leaders. So I wouldn't put them in the commodity category. Got it. So the Zeolyst JV has been under some pressure. What are the key things that are driving this pressure? So when you say pressure, you- I'm just looking at- Yeah. ... EBIT or, you know. Well, look, this year, I think, you know, we touched on the renewable fuels. We've had very, very robust sales of catalysts into renewable fuels. As well, it's been a very, a very good year for hydrocracking catalyst sales. You know, I think, I want to point out, you know, a lot of times people go back to 2019 was a very unusual peak year of hydrocracking sales, where a lot of the turnarounds were just condensed into one year. So I think the tendency for people is to go, "Well, 2019 was a great year. When do you get back to 2019?" I don't think you ever get back to 2019. It was unusual. And then what happened as we went into COVID was, we all know the refineries kind of dialed back, so they weren't degrading the catalysts. If it's a three, 3.5-year replacement cycle, you would have expected 2022 to be a big replacement year. But the catalyst didn't degrade as- Mm-hmm ... as quickly. Then the other thing that happened as we got into 2022, as we all know, refining margins were extremely high, probably the highest they've ever been. So the customers were extending the turnarounds because they had a decision to make. "I can make a lot of money at lower yield, or I can go down for the turnaround and make no money." So they pushed these turnarounds out, and what I'm getting at is that peak cycle that we had in 2019 seems to be now expanded. Okay. The turnarounds have been spread out a little bit. So we had a very good third quarter, sale quarter for hydrocracking catalysts. We've said fourth quarter, we expect to be very good, too, as well as the first quarter. B ut we don't get back to 2019, I don't think. Well, and I think it's important to point out, Gene, these are still, hydrocracking fixed bed replacements or event-driven sales, right? So while we might never see a peak of 2019 again, we're still gonna see that lumpiness, as it were, in the interim periods between the event-driven change-outs. Got it. And stepping back, what are some of the key drivers to grow your overall business? Well, I think one thing I'd suggest, you know, people... We had our Investor Day yesterday in New York, and I think the team did a great job of kind of laying out some of the growth drivers and kind of a five-year forward plan. You know, I don't want to preview that too much here, but I would say we expect continued growth in the Ecoservices business. Regeneration, we believe, continues to grow. If you look at what's driving alkylate demand, you know, that business, as we talked about, continues to grow. The virgin sulfuric acid business continues to grow. Mining demand, you know, for copper, as an example, continues to pull on that. We think the Chem32 business continues to grow with the growth in renewable fuel catalysts. And we talked about our treatment services business is continuing to grow. So, you know, for Ecoservices as a whole, you know, there's still a lot of nice growth momentum going forward. I think some of the exciting stuff that we talked about yesterday is we've kind of rebranded and renamed our Catalyst Technologies business. It's now our Materials & Catalysts business. We kind of recognize the specialty nature of a lot of what we do in terms of the material science in that business. We talked about some of the newer applications that are coming in, in terms of the catalytic pyrolysis for plastics recycling. S ome of the things that we're doing with immobilization of enzymes. A nd some of the developing catalyst technologies we have for things like carbon capture. So as we look forward, you know, we still see growth in polyethylene. In terms of the silica catalyst business, we've got all these other, you know, sort of really exciting growth areas that we're playing in. Great. And sort of where would you like to take the Ecovyst business? I mean, is there more M&A in the future? You know, I think, one of our – the leadership team is, as Gene mentioned, outlined a lot of this yesterday. S o I don't want to kind of front run that for you, Roger. But we're 100% focused on creating shareholder value. We understand that, some people are a little bit uncomfortable with our leverage ratio right now. We'll end the year about at 3 x. We've publicly stated that we've got a leverage target between 2x and 2.5 x. But if you look at the five-year projections on this business, we should generate about $600 million in free cash flow over the next five years. So in thinking about that, how are we going to deploy that capital? I think the first place we're going to look to is growth, growth in our organic businesses. As Gene mentioned, our capacity expansion at our Kansas City site will continue to debottleneck our Ecoservices businesses. So that first dollar beyond kind of leverage reduction is always gonna go to growing the organic business. Is M&A a possibility? Yes. As we look to deploy some of that free cash flow over the years, I think it is very much so. When you think about what type of M&A we would be looking at, it's really the bolt-on nature. If you look at our last transaction with the purchase of Chem32 in the spring of 2021, smaller company that we were very comfortable. We think one of our core competencies is working with sulfur, obviously in our Ecoservices business. The Chem 32 business was a sulfur technology that was adjacent, shared a lot of the same customer base that we already had. So I think if we were to do something, not that, not to say that we are, in Ecoservices, it would be an adjacent, probably core competency. In our Advanced Materials & Catalysts, I think it would be looking to purchase a technology around one of those areas that Gene mentioned. T he material sciences, carbon capture, those sorts of things, renewable fuels, to help us with our growth profile there. Thank you. And should the right M&A opportunity come around, where would you be comfortable taking, you know, leverage to, recognizing it'd be a presumably a short-term thing? Yeah, we, you know, for the time being as Nate said, you know, 2x-2.5x is sort of what we believe a lot of people would feel more comfortable from an equity standpoint. I do wanna say, we're very comfortable with leverage where it is. As you know, we have one tranche of debt out to 28. Nate and his team have done a great job of putting in place, you know, interest rate caps, so that we've got 75% of our interest exposure limited, which kind of gives us a, you know, a really nice buffer. And with the cash generation capability, you know, we feel very, very comfortable in terms of servicing the debt. So the comment about the leverage really is relative to the equity world today. But I, I would say in terms of, of M&A, I think Mike and Kurt have indicated, you know, we would, we would look at maybe taking the leverage back up into the 3x range. But it would be paramount to have a, a plan, you know, to be able to delever quickly again. Again, the nature of the things that we're looking at would be accretive. They would bring EBITDA to the table, and, you know, I, I think we have a fairly conservative posture around leverage, and we'd look to get it back down very quickly. Got it. And, my final question is, what input have you had from the rating agencies? In their view, what needs to transpire to see an upgrade? So, obviously we have ongoing conversations with the ratings agencies. I think they feel a lot like the market does. I think they see us trading and our credit trading a little bit better than our rating. So, what might need to transpire for an upgrade? I think just building that history. Ecovyst in its current state, while the company's over 200 years old or close to 200 years old, Ecovyst in Ecoservices and Advanced Materials & Catalysts is relatively young, just over two years old. So, they wanna see a little bit better, I guess, I shouldn't say better track record, but maybe more of a track record with just the standalone two business units is Ecovyst. But they're very, very comfortable with where we are from a leverage standpoint as well, so. Excellent. Well, Gene, Nate, thank you very much for coming in and speaking with us this morning. Our pleasure. Hope you have a good rest of your day. Thank you, Roger. Thank you. Thank you.