Ecovyst Inc.

Good morning, my name is Brittany and I will be your conference operator today. Welcome to the ECOVIS second quarter 2021 earnings call and webcast. Please note today's call is being recorded and should run approximately one hour. Currently, all participants have been placed in a listen-only mode to prevent any background noise. After the speaker's remarks, there will be a question and answer period. If you would like to ask a question at that time, please press star one on your telephone keypad. If you want to remove yourself from the queue, please press the pound key. When posing your question, we ask that you pick up your handset to allow for optimal sound quality. Lastly, if you should need operator assistance, please press star zero. I would now like to hand the conference over to Naila Azmi, Vice President of Investor Relations and Financial Communications. Please go ahead. Thank you.

Welcome, everyone. We are thrilled to have you join us for our first investor call as ECOVIST with a new trading ticker symbol of ECVT. We will start today with formal remarks from Bhagatam Chariag, Chairman, President, and Chief Executive Officer, and Mike Theon, Vice President and Chief Financial Officer. Then we will follow with a Q&A session. Please note that some of the information shared today is forward-looking information about the company's results and plans, our anticipated end-use demand trends, including the impact of COVID-19, and our 2021 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. These risks are discussed in the company's filings with the SEC, including in the company's annual report on Form 10-K for the year end of December 31, 2020. Reconciliations of non-GAAP financial measures mentioned on today's call with their corresponding GAAP measures can be found in our earnings release and presentation materials posted on the investor section of our new website at www.equalrisk.com. With that, I'm pleased to turn the call to Buck Asim.

Thanks, Nala, and good morning, everyone. I'm very excited to be here with you today. This week is very special for me. It marks my three-year anniversary with the company, a period during which we restructured our businesses, transformed our portfolio, and set the stage for executing a clear and well-developed winning strategy. This week has also been a momentous one for the company. As we closed the sale of performance chemicals and formally launched Ecovist, a pure-play, high-growth catalyst and services company, we have arrived at this next chapter of our journey thanks to the strong team execution and the solid support of our customers and shareholder base. Before I provide an update on Ecovist and its strategy, and cover the second quarter highlights, I'd like to recognize and welcome Mike Fien, Ecovist's new CFO. He has been with the company for 15 years and succeeds Mike Kruse, who decided to retire upon the completion of the transformation. We would like to thank Mike Kruse for his significant contributions over the last six years in bringing the company public and executing this transformation. We all wish him well in his future endeavors. With that, I will now turn to the slide presentation, starting with slide three to provide a brief review of the now completed simpler and stronger PQ transformation strategy. We closed on the sale of performance chemicals on August 1st, 2021. With the net cash proceeds, we reduced debt by approximately $525 million and planned another meaningful cash return to shareholders of $3.20 per share. This will bring our total cash return to shareholders to $5 per share in just eight months' time. We have taken a balanced approach to capital allocation since the IPO in 2017. Combining the proceeds from the sale of the two business segments, several assets monetization, and strong free cash flow generation. We allocated approximately one quarter for business reinvestment, one quarter for dividends, with a balance of one half for debt reduction. To summarize, we started on a strategic path to transform PQ from a strong foundation of four specialty businesses to be a simpler and stronger portfolio. With this final step of closing the sale of performance chemicals, we have succeeded in repositioning the company, now known as Ecovist. We believe that with significantly higher sales and adjusted EBITDA growth, coupled with leading margins and cash conversion rates, Ecovist compares favorably to its specialty chemical spheres. With that history behind us, let me turn to the outlook of Ecovist, its growing and greening strategy and investment proposition. Referring to slide four, EcoVist's mission is to be a catalyst for positive change through technologies that will play a critical role in supporting ecological health. We are committed to propelling expansion and growth for our customers. EcoVist is a more focused, nimbler company with two industry-leading businesses, EcoServices and Catalyst Technology, formerly known as Refining Services and Catalysts, respectively. These businesses command number one or two positions with their customers. Our core strengths include a track record of innovation, a diverse portfolio of proprietary products and services, and close collaboration with leading global players. For the ECOVIS strategy, Fundamental to our future is the fact that approximately 75% of our current end-use sales already solve customer needs and consumer demand for more sustainable products and services. Going forward, we are poised to focus primarily on enabling our customers with new novel solutions that meet the continued tightening standards for a cleaner economy. Over the next five years, approximately 80% of our R&D project pipeline and 90% of our R&D investment dollars will target increasing sustainable products and solutions to accelerate our commercialization and growth initiatives. With respect to our capital allocation objectives, our priorities for the use of free cash flows will continue to be opportunistic and balanced between debt reduction and bolt-on complementary business acquisitions. On the ecosystem investment proposition, we have two uniquely positioned specialty businesses with specified proprietary technologies and strategically positioned networks. This provides us with foundation to capitalize on meaningful opportunity set to grow with our customers as they shift with changing demand fundamentals. Our competitive advantage enables us to secure long-term contracts and favorable commercial terms, including minimum volume guarantees and cost pass-through that drive high visibility of recurring revenues. In addition, we have a proven ability to flex our cost structure to deliver strong margins in a wide range of economic environments. Over the five years period from 2020 to 2025, we expect this portfolio to deliver compounded annual growth rates of high single digits for sales and double digits for adjusted EBITDA, with nil to high 30% adjusted EBITDA margins. This should lead to even higher cash flow conversion than the current strong level. Now I'll discuss our two core businesses and their end-use growth trends. First on slide five for eco-services. This business is trying to grow with multiple greening trends, including the shift to clean and efficient fuels, electrification, and sustainable industrial solutions. Clean fuels represent our regeneration services, which are critical for refinery alkylate production. We have a non-paralleled North American network, particularly in the Gulf Coast region, with the largest alkylate producers. Accolade demand continues to grow with an expectation of 4% compounded annual growth rate from 2020 to 2025 due to the continued failure of those secular drivers. These include increasing demand for premium fuels, powering more fuel-efficient engines, addressing global low sulfur and low-reed vapor pressure fuel standards, and meeting higher Gulf Coast gasoline exports. We also expect to benefit from the strong recovery in vehicle miles traveled as 2021 is projected to exceed 2019 levels. Next for industrial applications. The market for specialty grade high purity version sulfuric acid continues to rebound due to the global economic recovery. More exciting is the rapid secular growth that we're seeing from increased mining activity. Rising electrification and greening infrastructure are driving increased use for copper, borates, and lithium. As an example, the copper content in electric vehicles is estimated to be approximately four times that of an internal combustion engine vehicle. The production of these metals and minerals requires large amounts of sulfuric acid, especially for the new mines in the southwest U.S., where our network and logistics management in this region are strategic to our customers. Finally, on waste treatment and catalyst activation, which firmly support the trend for sustainable solutions. Waste treatment services will capitalize on the movement to increase waste recycling. We have a unique ability to recover energy from waste and enable our customers to take advantage of waste exemptions. Our off-site catalyst activation business, Chem32, provides a safer, cleaner, and lower cost solution to traditional and renewable fuel producers. I would note that it is also benefiting from the proliferation of renewable diesel production, which almost exclusively utilizes off-site catalyst activation services. Next on slide six for catalyst technologies. We expect this business to continue its rapid growth driven by demand for customized technologies. Our customers are increasingly working with us to develop new catalysts that meet accelerating sustainability trends for stronger and lighter polymers, cleaner fuels, and cleaner air. Within clean fuels and air, As with eco-services, this business will benefit from increase in vehicle mass travel, which drives higher refinery utilization rates, more recently nearing 90%. As a result, we expect hydrocracking catalyst change-outs to increase as we enter the second half of 2021 and accelerate into 2022. This should drive double-digit sales growth for our hydrocracking catalyst in 2022 over 2021. In addition to the recovery of catalysts for traditional fuels, we're also seeing rapid demand growth for renewable fuel applications. With regards to emission control catalysts for heavy-duty diesel, or HVD, as OEMs increase their production, we are seeing improved demand sequentially in North America and Europe, where we have the strongest customer positions. As supply chain issues abate, we believe this segment will continue to recover in 2022. With polymers, our polyethylene catalyst growth continues to outpace the overall related market. This is attributed to our silica-based proprietary technologies, which are specified by leading global producers for high-density polyethylene, or HDPE. HDPE is used for packaging and films, which we expect to exhibit continued strong growth from rising population trends and consumer focus on health and hygiene. In terms of sustainability transfer recycling, we believe that we have a competitive advantage over new entrants. We not only have the technology to develop pyrolysis catalysts for chemical recycling of mixed plastics, but also the experience and credibility with customers to co-develop and scale up their solutions. We are in the demonstration phase of such catalysts and expect the development phase to follow. Finally, on niche trusts and catalysts. Lower production and delayed R&D and capital projects during 2020 and 2021 impacted demand. Recently, we have seen these projects resume and expect to have a strong recovery in 2022 with double-digit growth in subsequent years. In addition to the continued growth of our existing proprietary catalysts, we expect newer projects to focus on novel biochemical applications and metal recovery activities. We believe this will diversify the segment in a manner that will provide consistent growth with attractive margins. In summary for both these businesses, the economic recovery and secular market trends, coupled with our favorable customer positions, are expected to drive growth in volumes with favorable pricing terms under long-term customer contracts. As a result, we expect this will translate into accelerating growth in the second half of 2021 through 2022. Turning to slide seven, I'll now discuss our key focus areas for accelerating sustainability initiatives. Our commitment to innovation is how we differentiate ourselves in the marketplace. We are tailoring catalysts for the specific needs of our customers and supporting them in addressing their technical and operational challenges. As I mentioned earlier, with close collaboration with leading global companies, we have been longstanding suppliers of sustainability products and services, addressing tightening global regulatory standards and changing consumer preferences. For example, We continue to develop products that improve air quality through lower sulfur and NOx emissions in fuels. We are focused on the development of catalysts that help make plastics stronger and lighter, enabling the recycling of mixed plastics to complete the plastic circularity curve. We also enable higher alkylation for improved fuel economy and help transform biomass into biofuels and synthetic rubber for green tires. With greater focus and resources, EcoVest will expand and accelerate the commercialization of its portfolio of sustainable products by redirecting its R&D investment. Our innovation investment ratio on new sustainable products has gone from 60% in 2015 to 80% in 2020, and we anticipate further advancement to 90% by 2025. We will be targeting a pipeline of customer-supported projects for clean air, plastic circularity, and renewable fuels and materials. We see tremendous market opportunities and growth potential in these market areas. That essentially covers our ECOVIS strategy and businesses. Now let's shift to slide eight for a review of the second quarter highlights. Starting with safety. With all the portfolio activities we've had underway, our leaders made sure they remained focused, continued to emphasize risk identification and mitigation, reinforcing the rigorous implementation of our processes. Year-to-date, we maintain a solid safety record and posted over 90% perfect days, which is considered a top-tier achievement. On operations, First, our strategic and flexible manufacturing network, coupled with our team expertise, were critical in navigating through the supply planning and logistical challenges faced by our Catalyst customers. Not only did this benefit us in terms of sales, but this execution should also serve us well for the long term with these customers as they continue to seek certainty of supply. Second, we completed three facilities turnarounds on budget and in time for the anticipated strong seasonal summer demand in the third quarter for our regeneration services and virgin sulfuric acid. On the commercial front, our polyethylene catalyst sales growth continues to outperform the market, given our proprietary technologies and services supply solutions. Further, Chem32 has been successfully capturing sales growth from the renewable fuels markets. On strategy, we have already largely discussed our execution and future positioning. I would just add that we completed the ECOVIS refinancing for optimal payment terms to support a key element of our capital allocation, which is debt repayment. Finally, on financials, we delivered solid performance in the second quarter as we are in the recovery phase from the impacts of the pandemic. Sequentially, Quarterly sales rose 16%, adjusted EBITDA increased 25%, with a 200 basis point margin improvement, primarily on higher regeneration services and polyethylene demand. We expect an even stronger second half with significant growth in both top line and earnings as demand growth continues in each of our end-use markets. Now I would like to turn the call to Mike to discuss our second quarter financial results and outlook.