Ecovyst Inc.

Good morning. My name is Travis, and I will be your conference operator today. Welcome to the ECHOVIS third quarter 2023 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 the star 1 on your telephone keypad. If you want to remove yourself from the queue, please press star 2. Composing your question, we ask that you please pick up your handset to allow for optimal sound quality. Lastly, if you should need operator assistance, please press star 0. I would now like to turn the call over to Gene Shields, Director of Investor Relations. Please go ahead, sir.

Thank you. Good morning and welcome to the ECOWIS third quarter 2023 earnings call. With me on the call this morning are Kurt Bidding, ECOVIS Chief Executive Officer, and Mike Feehan, ECOVIS 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 2023 financial outlook. This information is subject to risks and uncertainties that could cause the actual results and the implementation of the company's plans to vary materially. Any forward-looking information shared today speaks only as of this date. These risks are discussed in the company's filings with the SEC. Reconciliations of non-GAAP financial measures mentioned in today's call with their corresponding GAAP measures can be found in the earnings release and the presentation materials posted in the investor section of our website at Ecovist.com. I'll now turn the call over to Curt Bidding.

Thank you, Gene, and good morning. I am pleased with Ecovist's performance in the third quarter. Against the backdrop of an evolving and an uncertain macro environment, Ecovist delivered solid results for the third quarter of 2023. Ecoviz also made good progress on several key strategic initiatives, including launching our operational and reliability enhancement program, announcing a major expansion for our Kansas City silica catalyst plant, and rebranding our zeolite products to highlight our differentiated technology in emerging areas such as renewables and plastic circularity. During the third quarter, demand across the majority of our end-use exposures remained stable. In our eco-services business, High utilization rates for our refining customers continue to drive demand for our regeneration services, while in our virgin sulfuric acid business, our broad exposure to a variety of industrial applications provided a level of stability in the quarter. However, as anticipated on our second quarter earnings call in early August, our third quarter sales of virgin sulfuric acid reflected weaker demand for oleum and high purity grades of sulfuric acid utilized in the production of caprolactam and other nylon intermediates. For catalyst technologies, as anticipated, sales of polyethylene catalysts were lower in the third quarter due to weaker global polyethylene demand and the ongoing impact of destocking. However, in the ZI joint venture, sales were up over 30% on higher sales of hydrocracking catalysts and catalysts used in the production of renewable fuels. Of note, and in contrast to many industrial sectors facing weak demand and volume declines, pricing in both eco-services and catalyst technologies remained positive in the third quarter. Third quarter adjusted EBITDA was $68 million, down 10% compared to the third quarter of 2022, with the decrease largely driven by lower sales volume in the nylon and polyethylene end-uses and higher maintenance, repair, and networking costs arising from the previously discussed outage at our Dominguez site to correct a production restriction. Looking to the fourth quarter and the balance of the year, we expect our diverse end-use exposures will continue to provide for a level of stability. Although we do not anticipate any material change in polyethylene market conditions for the balance of the year, For virgin sulfuric acid sales into the nylon end use, we now expect incremental weakness associated with the UAW strike and its impact on auto production and therefore demand for nylon used in light weighting of automotive parts. In light of our expectations for softer virgin sulfuric acid demand in the fourth quarter, we have elected to accelerate into 2023 a turnaround at one of our eco-services sites that was previously planned for 2024. While the revised timing for the turnaround will have a modest impact on our production capacity for virgin sulfuric acid in the fourth quarter, we believe this step will better align fourth quarter production capacity with expected demand, but more importantly will eliminate downtime in 2024 that could impact our ability to address demand recovery. As a result of this decision, which we feel will result in net production reliability for 2024, we expect to incur incremental costs associated with the turnaround this year. Given our expectations for lower virgin sulfuric acid sales, incremental costs with the turnaround, and recognizing the potential for continued destocking and further demand weakness, we now anticipate that full year 2023 adjusted EBITDA will fall at the low end of our guidance range of $260 to $275 million. However, our longer-term outlook remains very positive. We believe our unique portfolio diversification of stable end-use exposures and leverage the key megatrends driving future demand in emerging sustainable technologies, such as renewable fuels and plastics recycling, provide for attractive growth opportunities. We look forward to discussing our strategies to leverage these growth opportunities in our November 28th Investor Day. As we turn to slide six, I'll provide more perspective on our near-term demand outlook. Throughout 2023, strong demand for refined products and historically low gasoline inventories continue to drive high rates of utilization for our refining customers. These high rates of refinery utilization in conjunction with attractive refining margins have continued to support demand strength for our regeneration services. Given third-party projections for refined products and based upon input from our refining customers, we expect refinery utilization rates will remain at high levels. While we have planned for our refining customers to take their customary seasonal turnarounds in the fourth quarter, our outlook for regeneration services business for the remainder of 2023 and into 2024 remains positive. For virgin sulfuric acid, we expect softer near-term conditions for the nylon end use. We continue to believe that we are at or near trough of the cycle conditions for the nylon end use, and we anticipate demand improvement with the recovery in automotive production and other end uses for nylon production, and ASD stocking for nylon and its precursors runs its course. For the balance of eco-services, we continue to see extremely high utilization levels and a full-order pipeline in our Chem 32 business, driven by activation of hydrocracking and hydro-processing catalysts used in the production of conventional fuels and by capacity expansion for the production of renewable fuels. Due to market demand and with increasing regulatory support, we expect that production capacity for renewable fuels, including renewable diesel and sustainable aviation fuel, will continue to expand, and this, in conjunction with more frequent catalyst change-outs, is expected to provide attractive growth opportunities for our catalyst activation business. Lastly, we continue to see strong demand for our waste treatment services for our Gulf Coast petrochemical and refining customers as a preferred disposal alternative. Looking to catalyst technologies, we expect near-term sales of polyethylene catalysts to reflect the current sluggish demand environment and the significant impact of destocking, particularly in China and in Europe. However, our longer-term outlook for our polyethylene catalyst business remains positive. Relative to historical rates of global demand growth for polyethylene, our customized approach to catalyst design has provided for differential growth in overall sales. We believe we are well represented in newer, lower-cost capacity additions, particularly in North America and in the Middle East, where more favorable economics should support demand recovery as destocking abates. As evidence of our customers' expectations and growth needs, we recently announced an expansion project at our Kansas City site that is expected to increase the site's silica catalyst production capacity by 50 percent. This expansion project is supported by long-term customer commitments for the increased capacity, providing further confidence in the longer-term outlook for polyethylene catalyst demand. For our zeoless joint venture, as noted, we saw strong sales of hydrocracking catalysts in the third quarter, and we continue to expect positive sales in the fourth quarter and into the first quarter of 2024. As noted in my discussion of our Chem32 business, we expect continued growth in the production of renewable fuels where our zeolite catalyst materials are used in the de-waxing process for the production of renewable diesel and sustainable aviation fuel. We look forward to sharing more detail on our expectations for longer-term demand trends and associated growth drivers for our business in our investor day in November. At this time, I'll turn the call over to Mike for a more detailed discussion of our third quarter results. Thank you, Kurt. Turning to slide eight, I'll provide additional detail on our third quarter financial results. Total sales for the quarter, including our proportionate 50% share of sales from the ZLIS joint venture, were $210 million, compared to $260 million for the third quarter of 2022. Of the $50 million change in sales, $39 million was driven by the pass-through of the lower sulfur costs. With the balance of the sales decrease, largely the result lower sales volume for virgin sulfuric acid used in the production of nylon intermediates and lower sales of silica-based catalysts used for polyethylene production. This was partially offset by continued strong pricing in both businesses and higher sales of hydrocracking catalysts and catalysts used in renewable fuel applications. Third quarter adjusted EBITDA was $68 million compared to $75 million in the prior year. The decrease was a function of lower sales volume, as noted, and higher operational costs associated with increased manufacturing and networking costs arising from the previously discussed Dominguez production outage in July. The adjusted EBITDA margin for the third quarter was 32%, up 330 basis points, with the margin uplift primarily driven by the impact of the pass-through of lower sulfur costs, along with favorable pricing partially offset by higher manufacturing and networking costs. As we move to the next slide, I'll highlight the primary components of the change in adjusted EBITDA compared to the prior year third quarter. As was the case in the second quarter, average sulfur prices in the third quarter of 2023 were significantly lower than in the prior year. Pass-through of these lower sulfur costs had an aggregate impact of $39 million in variable costs with a corresponding reduction in average selling prices. As such, the lower sulfur cost pass-through on sales during the quarter had no impact on adjusted EBITDA. The largest contributors to the reduction in adjusted EBITDA were lower sales volume along with the higher variable costs in the quarter. The higher variable costs were primarily a result of the additional networking costs and higher energy costs associated with planned maintenance. These factors were partially offset by higher pricing in the quarter. Let's now turn to our segment results, starting with Eco Services. Third quarter sales for Eco Services was $148 million, compared to $196 million in the third quarter of 2022. Of the change in sales, $39 million relates to the pass-through of lower average sulfur costs. The balance of the sales decrease was driven by lower demand for virgin sulfuric acid used in the production of nylon intermediates, and to a lesser extent, lower spot virgin sulfuric acid sales. Adjusted EBITDA for eco-services was $55 million in the third quarter, compared to $64 million in the prior year, with the decrease primarily driven by the lower sales volume, as well as the anticipated higher manufacturing and networking costs arising from the Dominguez production outage that occurred earlier in the quarter. For the third quarter, the Ecoservices adjusted even margin was 37% of 430 basis points. The margin increase was largely driven by the pass-through of lower sulfur costs, partially offset by higher costs in the quarter. Total sales for catalyst technologies in the third quarter, including our proportionate share of zealous joint venture sales, were $63 million, compared to $65 million in the third quarter of 2022. Silica catalyst sales for the third quarter were $26 million, down $11 million on lower demand for polyethylene catalysts and the absence of niche custom catalyst sales. As a reminder, certain sales of niche custom catalysts are event-driven and may be replaced every two to three years. Third quarter sales for the Zealous joint venture were $37 million, up $9 million, or 33%, with higher sales of hydrocracking catalysts and catalysts used in renewable fuel applications. Adjusted EBITDA for catalyst technologies was $16 million in the third quarter, down $3 million compared to the prior year. As pricing remained positive in the quarter, the decrease reflects the lower silica catalyst sales volume, partially offset by the continued strong pricing, as well as higher sales of hydrocracking and renewable fuel catalysts. The adjusted EBITDA margin for catalyst technologies was lower, driven by unfavorable mix and higher costs, partially offset by increased pricing. Turning to the next slide, I'll provide a few comments on our cash and leverage positions. We continue to maintain a balanced approach to capital allocation, and reducing leverage to our target of two to two and a half times remains a key priority. That said, we will continue to be opportunistic but prudent as we evaluate our capital deployment options. During the third quarter, we repurchased 541,000 shares of stock through the open market for an aggregate amount of just over $5 million. At the end of the quarter, we held a strong liquidity position of $109 million. We ended the third quarter with a net debt leverage ratio of 3.2 times, unchanged from the end of the second quarter. From a balance sheet perspective, we remain in excellent shape. We have one term loan with a maturity date of June of 2028. In addition, we continue to effectively manage our interest rate exposure. We have 75% of our interest exposure capped through the third quarter of 2026 with an all-in cost of debt of approximately 5%. And we continue to evaluate opportunities to extend our interest rate protection. I will now go over our guidance and expectations for the balance of 2023. We now expect sales for the full year 2023 to be in the range of $675 to $705 million. with the modest reduction from our most recent guidance range reflecting an expectation for incremental demand weakness for virgin sulfuric acid sales into the nylon end use, the soft environment for the demand of polyethylene catalyst, and the potential for a timing shift of some zealous joint venture sales from Q4 into the first quarter of 2024. Accordingly, we expect sales for the ZLIS joint venture to be between $150 and $160 million for the full year. In light of the sales volume expectations and taking into consideration the incremental cost and sales impact associated with the pull forward of turnaround activity into 2023 that Kirk mentioned, we now expect full year 2023 adjusted EBITDA to be at the low end of our previous annual guidance range at approximately $260 million, which is 6% lower than the prior year. At the segment level, for the fourth quarter, we expect Ecoservices adjusted EBITDA to be down mid to high single digits compared to the fourth quarter of 2022. Catalyst Technologies, however, is expected to be up significantly compared to the fourth quarter of 2022, at a level similar to their second quarter results. Overall, Ecovist is expected to be in line with prior year fourth quarter or at approximately $70 million. In terms of our cash flow, as we have highlighted previously, the nature of our business historically has provided for strong cash generation, and we certainly expect this to continue going forward. However, we are revising our 2023 free cash flow mainly due to revised expectations for the timing of dividends from our zealous joint venture prior to the end of the year, and to a lesser extent, modestly lower expectations for adjusted EBITDA. As previously discussed, within the zealous joint venture, we anticipate strong sales of hydrocracking catalysts in the fourth quarter, up close to 50% over the prior year fourth quarter. And for the full year, we expect to be up close to 40% year over year. As we have gained better visibility into the projected timing of these sales, we now expect that some sales may occur very late in the quarter. Considering normal receivable timing, collection of sales occurring late in the fourth quarter may extend into early 2024. In addition, With further insight into order timing that suggests stronger hydrocracking sales in the first quarter of 2024, we are now planning for a larger inventory build in the fourth quarter in advance of the anticipated strong first quarter hydrocracking sales. The revised expectations for receivable timing and the working capital needs associated with the fourth quarter inventory build are now expected to alter the timing of dividends received from the joint venture. As a result, We now expect free cash flow to be between $70 and $80 million. As the reduction in cash generation associated with the dividends from the Zealous joint venture is entirely timing related, we anticipate a comparative cash flow benefit in 2024. In light of the revised assumptions impacting cash generation, we expect to end the year with a net debt leverage ratio of approximately three times. I will now hand the call back to Kurt for some closing remarks. Thank you, Mike. Overall, we are pleased with our results for the third quarter. Our end-use exposures and diversification provided a level of stability in an uncertain macro environment. Moreover, pricing remained positive for both eco-services and catalyst technologies. While we saw lower demand in the third quarter specifically for virgin sulfuric acid into the nylon end-use, and for polyethylene catalysts as expected, we believe much of the near-term weakness is associated with the effects of destocking, which is transitory. For the balance of the year, we expect predictable performance from our regeneration services business and following strong third-quarter hydrocracking sales and consistent with the expectations we have had throughout this year for a stronger second half of the year, we continue to expect robust sales of hydrocracking catalysts in the fourth quarter and into the first quarter of 2024. Despite the near-term uncertainty in the macro environment, we believe the longer-term demand fundamentals for our business remains extremely positive. We see continued growth in our regeneration services business, which is supporting alkali production that is essential in the production of cleaner-burning, more efficient fuels. We see ongoing demand growth for virgin sulfuric acid given the critical role it plays in so many industrial processes. And for our catalyst technologies business, we see continued growth driven by expanding production capacity for polyethylene, as well as catalysts used for emerging technologies such as plastics recycling, renewable fuels, and enzymatic processes. The near-term demand softness, primarily concentrated in two specific end uses, has not altered our longer-term growth expectations for those end uses. or for our business as a whole. We look forward to discussing our demand outlook and our strategies to deliver value for the benefit of our shareholders in more detail at our Investor Day in November. At this time, I will ask the operator to open the line for questions.

At this time, if you would like to ask a question, please press the star and 1 on your telephone keypad. You may remove yourself from the queue at any time by pressing star 2. Once again, that is star one to ask a question. We will pause for a moment to allow questions to queue. Our first question comes from John McNulty, BMO Capital Markets.

Yeah, good morning. Thanks for taking my question. So I guess I had a couple of questions. One would be as far as the turnaround pull forward, you said there was some incremental cost to it. Can you help us to quantify what that impact was in total to your 4Q outlook or your full year outlook, however you want to put it?

Sure. Thanks for the question, John. I think it's about, you know, when we look at versus kind of the midpoint of our previous guidance, you know, and walking that back to our guide now, I would say about half of that adjustment downwards is due to, you know, kind of the additional slowness we saw on the nylon segment related to the UAW strike, and then about half of it on that, and then the corresponding turnaround costs as well. So if I'm looking at, you know, that walkback, about half of it I would consider nylon and the pull forward of that turnaround to meet or kind of to align our production volumes with the slower nylon demand.

Got it. Okay, fair enough. And then just a question on – on the free cash flow change and the deal is the seal is catalyst business. So I guess, can you help me to understand? Cause I wasn't completely clear. I will, maybe I missed it, but, um, Is that shift in the timing where it sounds like things are maybe going to come in late in the quarter and so some of the receivables are pushed out? But I guess I was a little bit confused as to, did you push out some of the earnings to next year around that zealot catalyst business and maybe some, you know, a little bit later adoption there? Or is it something, is it really just on the cash flow side?

Yeah, John, it's Mike. Yeah, no change on the earnings side, right? It's all within the cash. You know, we really saw a high concentration of hydrocracking sales in the fourth quarter and into the first quarter of next year. So over a six-month period, it's quite significant. So that really does two things. One, we have to have more of an inventory build to build for those higher sales in Q1 of next year. And it also impacts the timing of some of those receivables, not that there's a collection challenge, but more just the timing nature of when those sales go out and when the collection comes through. So all of this timing is expected to have a comparative benefit to us in early next year. So just timing. between two years on the cash flow dividends from ZI.

Got it. Fair enough. And maybe just one last one on that. Would you expect, because it sounds like you've got some really strong demand in 4Q. It sounds like, if anything, it's coming in maybe stronger than you thought in 1Q. Can you help us just to level set? Should we be thinking about 1Q at least as high as 4Q? Is it going to be notably higher? How would you characterize it, at least based on what you see right now?

Yeah, I mean, we're not guiding really to Q1, but I would say the six-month period between Q4 and Q1 is a very high concentration period. But I'd say higher than a normal Q1 for hydrocracking. We don't have the exact number yet, but the way we're looking at it, I think as Mike explained to you, John, is that across those two quarters, it's just a very high concentration during that period of time.

Got it. Fair enough. Thanks very much for the color.

Our next question comes from Alexey Yefermov, KeyBank Capital.

Thanks. Good morning, everyone. I just had a follow-up on your slide six. You're showing an arrow for virgin sulfuric acid that's getting a little bit greener. And does it mean to imply that

uh this business is getting stronger sequentially in the fourth quarter compared to third quarter yes good morning i think what that what's that saying is the uh we see we see stability across the you know we have a diverse end set of uh of our diverse uh group of segments that we serve uh across virgin acid so We see the strength in mining. Where we've had struggles is that nylon space, right? So we're seeing that kind of, I would say, hitting its trough, right? And we're aligning our production, you know, our production accordingly to that and pulling for that turnaround. So, you know, our view right now on the Virgin market is very diverse. The one area that we've struggled is really concentrated into that nylon segment and, you know, the other segments. remain pretty stable. But we do, as you heard in our comments, we are cautious towards the end of the year, you know, in some of the industrial spaces if there would be, you know, further macroeconomic headwinds that would cause customers to accelerate destocking or anything like that.

Okay, thanks. And then just a longer-term question. I mean, you used to talk about your wins in polyethylene catalysts. and how you have some visibility extending over a few years, right? Could you talk about that? How has your kind of longer-term looking win rate in polyethylene, how has it been lately? And can you tell us anything about the next couple of years for that business?

I think the best thing we can really say about that and the evidence of that is the Kansas City expansion that we announced this quarter. So that expansion will happen over the next two years. We expect it to come online towards the end of 2025, which is really meant to meet customer commitments that have been given to us that are out past that time period. So we're really confident in that business and our long-term win rate. And, you know, we're installing capacity backed by the customer commitments to meet that long-term future demand.

Thanks a lot.

Next question comes from David Bigletter, Deutsche Bank.

Hey, good morning. This is Anthony Mercandetti on for David. What ending would you say that we're in in this B-Stock cycle in nylon?

That's a good question, Anthony, and thanks for it. We do believe we're in the trough of that cycle. We can't really – we're not giving guidance for beyond this year, obviously. But we do see that a lot of the more regression that we had in that segment for the end of this year really was kind of aggravated by the UAW strike. So we would expect that we're at the trough of this cycle, and then destocking will run its course during this quarter.

Okay. And then given what you're seeing on demand in these certain end markets, how should we think about virgin sulfuric acid pricing trending through, let's say, the balance of the year and early on into 2024?

Well, I think the first, you know, is the sulfuric pricing is related to sulfur pricing. So we did see a step up in sulfur pricing, which, you know, we passed through to our customers, you know, at 100% level. So that pricing will rise on the basis of that raw material cost pass-through. But then we have a high amount of contracts. A high amount of our business is also contracted. So we don't have a tremendous amount of material – you know, that's changing, you know, off its long-term price contract at any given point. Most of it, you know, around 90%-ish is under a longer-term, you know, one, two, three, or even five-year contract.

Okay. And then just last one for me. As we go into 24, there's a lot of uncertainty just in the global macro environment. Can you just remind us how should we think about the underlying earnings power of this business in a lower growth, economic environment or a recession potential recessionary environment.

Yeah, so we've, a bunch of us, you know, Mike and the management team and myself have been with the business for quite some time and seen the business go through a couple cycles. And, you know, we feel the business as a whole, due to its diverse, you know, end market uses that it services is, you know, sets up well and is pretty resilient through economic down cycles. I'll point you to, you know, the regeneration business, which is, largely linked to refinery utilization, the value of octane, all those things look positive going into next year and generally not all that cyclical with other macroeconomic headwinds. Mining, another large segment for us, obviously with all the demand for metals and minerals going forward for electrification and green infrastructure should remain firm. Our treatment services and activation business are also largely in a very sold-out position, and we would expect that to continue. And then finally, the renewables space continues to grow, right? As renewable fuels gain a larger share of the overall distillate pool, moving from eventually up to 5% by 2025, that production level is going to continue to grow. And, you know, that should continue to happen in light of any macroeconomic headwinds.

Thanks very much.

Our next question comes from Patrick Cunningham, Citi.

Hi, good morning. This is Eric Zhang, author of Patrick's. With the anticipated stronger sales in hydrocracking catalysts in 1Q24, what sort of uplifts should we see there, and how should we think about the margin profile for catalyst technologies as a whole?

So I would say, thanks for the question, Eric. Clearly, what I say about hydrocracking is we're in that six-month period of a really high concentration of sales between what we expect to realize in Q4 and then what we see in the pipeline for Q1. We're really not in a position to guide really for the full year of 2024 for hydrocracking because we just don't have that full year visibility on the order pipeline yet. And the order timing for that – can change, right, in terms of the cadence of orders has changed a little bit since we've come out of the pandemic. There used to be much more predictability, but the pandemic kind of stretched some turnarounds, product mixes changes at refineries, so we don't quite have that visibility yet. That being said, I would not expect a peak or a high concentration cycle that we've had during this six-month period that we think is going to have to repeat itself sometime later in 2024. I mean, it's clearly, you know, a high concentration cycle right now.

Okay. Got it. Thank you. And my last question is, what is driving the balance in backlog to build ratio for emission control catalysts?

I mean, the backlog in that segment is really a hangover of just, you know, tremendous shortage and that sort of thing that went on for heavy-duty vehicle, right? So there was a period during the pandemic and coming out of the pandemic, there was a high demand for trucks. So they're still working through that order backlog, you know, similar to what's going on in the auto industry. So it's just really a hangover, the backlog of the whole chip and supply chain shortage that was experienced in 21 and 22. Okay, great. Thank you.

Our next question comes from Hamed Khorasan, B&O. BWS Financial. Hey, good morning. So first off, just on the SG&A line, how sustainable is that as far as what you reported in Q3 going forward? Was there any special savings there that occurred?

Yeah, I think the SG&A was a little bit lower, really because of some employment, you know, compensation adjustments in there. So it's probably a little more beneficial than other orders.

Can you provide some, like, magnitude? I mean, there was quite a bit of a drop from Q2 levels.

Yeah, I mean, there's a couple million dollars were flowing through there that would probably not be recurring in future future quarters.

And my other question was your commentary around hydrocracking and in Q1, how would that impact your nameplate capacity for all of 24 and your contracts that you usually enter into for 24?

Hi, Ahmed. It doesn't impact our ability to service the customers going into 2024. I think the material impact that it's had, you know, what Mike was mentioning on the call was we have a big, you know, a large inventory build right now going on to meet those orders in Q1, which Q1 is a heavier quarter. And across that span of that six-month period, there's a high concentration of volume and sales going out. But Our production assets have the capability to meet that required production schedule, so there will be no issue there.

Okay, thank you. Our next question comes from Lawrence Alexander, Jefferies.

Hi, thanks for taking my question. This is actually Dan Rizwan for Lawrence. Just thinking about pricing going forward, I think it's been fairly strong, but I was just thinking, just given the volatility, some of the stocking going on, how you're thinking about it in Q4 and as we head into 2024? Yeah, hi, Dan.

So the business is, you know, obviously, again, the service is a very diverse set of end uses. So if you look at the portfolio, I'll point you, you know, regeneration. Those are very long-term agreements that are indexed. They're renegotiated at long intervals, so we don't expect, given the state of the refinery utilization and the utilization in that industry, we feel good about the pricing going forward on that just based on the long-term nature of the agreements. Virgin Acid, similar story, right, where that can tend to be one of the more areas that can be susceptible to these short-term destocking, but again, more of a longer-term agreement situation because a lot of those customers require our specific sulfuric acid, whether it's due to the high purity nature of it or the strength or our geographic location. And then moving over to the catalyst-oriented areas, hydrocracking, those orders are done based on really performance is driving the value there, as well as I'd say the polyethylene. Both of those segments are very sticky with their customers and product is being sold on a performance basis. And it only generally makes up a very small percentage of the refineries or the PET chem plants overall cost. So we generally don't see the pricing pressure associated with that. So, you know, I think pricing can change, obviously, as well. You know, some of the things are indexed to raw materials or some of those things move around. You know, adjustments are made accordingly.

Okay, thank you very much.

Our next question comes from David Silver, CL King. Yeah, hi, good morning. I'll apologize in advance, sir. I did have to step out at one or two points here, so apologies if I make you repeat yourself. Regarding the Dominguez outage, Was there a discussion of the economic impact of that on the third quarter results? In other words, there were some repairs and maintenance. I'm guessing there was some lost volume. I don't know if any of that was insurable. Any way to think about the economic impact of the Dominguez outage on your third quarter results?

Yeah, I would put – thanks, David, for the question. You know, the Dominguez outage, we took the plant down again at the end of July to fix what was a production restriction and made that correction, and it's been running since that. So, you know, if you had to look at that impact in July, it was probably in the $4 million range, and that's between the cost to repair the plant – And, you know, the downtime and associated networking costs as we had to move product around our production network to service those customers.

Thank you for that. And then somewhat similarly, but you are advancing the timing of a turnaround. And I'm sorry, I don't recall this, but, you know, some companies accrue for turnaround costs throughout, you know, quarterly or throughout the year. other companies, you know, concentrate the costs of the turnaround in the period when the work is done. Can you just remind me how I should think about that? In other words, is this pulling costs directly out of fiscal year 24 and putting them all in the fourth quarter? Or, you know, have some of the costs already been recognized? I mean, just, you know, if you could just kind of discuss that, that would be helpful. Thank you.

Yeah. Hi, David. So the turnaround costs, really, when we do turnarounds, there's really two components to it. There's first generally a capital component, right? And so as we start the turnaround costs, certain costs are capitalized as part of extending the useful life of it. But at the same time, when we bring units down for these turnarounds, we also incur additional expenses. So What we're referring to here are the additional expenses that we would put through into the fourth quarter by pulling that turnaround forward into Q4.

Okay, thank you. Yeah, I should have clarified also capitalizing costs versus expensing, but thank you for that. Last question, you know, you did repurchase some shares this quarter. And I mean, if I'm just looking back from a couple of year perspective, I mean, you hadn't really repurchased any shares outside of the secondary offerings by your large shareholders. And one of those large shareholders, I think, is still holding, I think, 9 million shares or something. So was the share buyback activity this quarter maybe due to a desire to offset the options issuance, or is it purely opportunistic? I mean, how should we think about that, and in particular, kind of moving forward?

Yeah, thanks for the question. So I'll just start really, you know, our long-term, EcoBiz's long-term goal, right, is to get our leverage into that two to two and a half range. And so our capital allocation strategy is going to be highly focused on that goal. That being said, the capital allocation strategy is balanced and flexible. So opportunistically, we will come in and repurchase shares when we feel that the share price has fallen to a very low level or it doesn't quite reflect the value of the company. And we did have a repurchase in 2022 where we did kind of a similar thing. So this repurchase here, you know, just to put it in perspective, it's obvious it was around $5 million of cost, which really is not going to materially move the needle in terms of our ability to reach that two and a half to two times leverage goal.

All right. Very good. Thank you very much. We have no further questions in the queue at this time. This does conclude the third quarter 2023 earnings call-in webcast. Thank you for your participation, and you may disconnect.