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Review of Segment Results and Business Trends

Ecoservices

Our regeneration services support the production of alkylate, a high value gasoline component critical for meeting regulatory gasoline standards and for producing premium grade gasoline. More stringent gasoline standards and increasing demand for higher-octane premium fuels used in high compression, more fuel-efficient engines have contributed to high utilization rates for our customers' alkylation units. High refinery utilization and favorable refining margins during the first half of 2024 continued to support demand for our regeneration services and we expect that refinery utilization will remain high in the second half of 2024. Sulfuric acid is a widely used chemical that plays a key role in the production of a wide array of materials, particularly those supporting green infrastructure. In the second quarter of 2024, sales of virgin sulfuric acid increased compared to the second quarter of 2023. We expect our virgin sulfuric acid sales to continue to benefit from mining activity for metals and minerals that provide conductivity in low carbon technologies, as well as from demand in a wide range of industrial applications. Our catalyst activation services provide for ex-situ sulfiding and pre-activation for hydro-processing catalysts, with expected demand growth in both traditional and sustainable fuel production. We believe sustainability trends will continue to translate into favorable demand for our treatment services business as customers seek the sustainability-focused waste solutions offered by Ecoservices.

Second quarter 2024 sales were $153.9 million, compared to $158.1 million in the second quarter of 2023. The change in sales reflects lower average selling prices, primarily due to the pass-through of lower variable costs, including costs for energy and sulfur of approximately $3 million, partially offset by higher sales volume for regeneration services and virgin sulfuric acid. Second quarter 2024 Adjusted EBITDA was $49.7 million, compared to $60.1 million in the second quarter of 2023. The decrease was primarily driven by unfavorable net pricing, reflecting the timing and contractual pass-through of certain costs, including energy and other indexed costs, and an increase in turnaround and maintenance costs, partially offset by higher sales volume in both regeneration services and virgin sulfuric acid.

Advanced Materials & Catalysts

Our Advanced Silicas business supplies critical catalyst components for the production of high-density polyethylene, a high-strength and high-stiffness plastic used in bottles, containers, and molded applications and linear low-density polyethylene used predominately for films. While we continue to expect long-term demand for polyethylene films and packaging to remain positive, during the second half of 2023 we saw evidence of softer global demand and lower operating rates for polyethylene producers, which have continued into the first half of 2024. During the second quarter, sales volume for Advanced Silicas increased on higher sales of niche custom catalysts and functionalized silicas. Our future expectations for sales of advanced silicas used for the production of polyethylene are based, in part, on the ongoing expansion of our Advanced Silicas production capability at our Kansas City, Kansas facility, that is intended to support growth in demand for polyethylene production, backed by long-term customer commitments. We expect the expansion at our Kansas City, Kansas site to be complete in late 2025. Through the Zeolyst Joint Venture, we supply specialty catalysts to customers for use in the production of both traditional and sustainable fuels, petrochemicals, and emission control systems for both on-road and non-road diesel engines. We also supply niche-custom catalysts in the refining and petrochemical industries.

During the second quarter of 2024, Advanced Silicas sales were $28.9 million, compared to $26.0 million in the second quarter of 2023, with the increase primarily related to higher sales of niche custom catalysts. Our proportionate 50% share of second quarter sales for the Zeolyst Joint Venture was $29.0 million, compared to $44.7 million in the second quarter of 2023. The change in Zeolyst Joint Venture sales was due primarily to lower sales of catalysts used in the production of sustainable fuels, emission control applications and timing of niche custom catalyst sales. Second quarter 2024 Adjusted EBITDA for Advanced Materials & Catalysts, which includes our proportionate 50% share of the Zeolyst Joint Venture, was $14.7 million, compared to $25.4 million in the second quarter of 2023, with the change reflecting lower sales within the Zeolyst Joint Venture, partially offset by higher sales in Advanced Silicas.

Cash Flows and Balance Sheet

Cash flows from operating activities was $46.4 million for the six months ended June 30, 2024, compared to $41.1 million for the six months ended June 30, 2023. The increase was primarily driven by the timing of dividends received from the Zeolyst Joint Venture offset by debt extinguishment costs. At June 30, 2024, the Company had cash and cash equivalents of $83.3 million, total gross debt of $873.0 million and availability under the ABL facility of $72.3 million, after giving effect to $3.3 million of outstanding letters of credit and no revolving credit facility borrowings outstanding, for total available liquidity of $155.6 million. The net debt to net income ratio was 14.1x as of June 30, 2024 and the net debt leverage ratio was 3.3x as of June 30, 2024.

Updated 2024 Financial Outlook

"For the second half of 2024 we expect demand for regeneration services, treatment services and catalyst activation to remain positive. We currently expect sales of virgin sulfuric acid to increase in 2024, compared to 2023, however, we are cautious about macro-economic headwinds in the second half of 2024 that could lead to lower industrial demand and a weaker spot market demand for virgin acid. The Hurricane Beryl weather event is expected to result in a modest impact to our third quarter Ecoservices results due to repair costs and prolonged storm-related production outages at a few of our customers. For Advanced Silicas, we continue to expect sales of polyethylene catalysts and supports to be up in 2024 as compared to 2023. However, uncertainty around industrial fundamentals and operating rates could impact the size of these gains," said Bitting.

"While we remain excited about the long-term growth prospects for catalyst sales into sustainable fuel applications, we are revising our near-term outlook given evolving industry trends in 2024. The value of Renewable Identification Numbers or RINs, which incentivize the production of renewable diesel, have been adversely impacted by the development of an imbalance between production and current demand. This imbalance, in conjunction with the increased cost of feedstocks, has adversely impacted near-term economics for producers of renewable diesel. We expect that this near-term headwind will result in the deferral of construction of new renewable diesel units. We also expect that low utilization rates in the existing renewable diesel units will result in deferred refill sales as producers are able to extend catalyst life. In addition, U.S. rising interest rates have adversely impacted sales of heavy-duty diesel vehicles. June sales were down 25% year-over-year, and marked the eleventh consecutive month of sales declines for Class 8 vehicles in the U.S. In Europe, the four-year delay in implementation of Euro7 for heavy-duty diesel vehicles has also impacted sales, with sales of heavy-duty vehicles expected to be down 15% to 20% year-over-year. As a result, we have also reduced our expectations for sales of emission control catalysts for the balance of the year.

In consideration of our lower expectations for sales of catalysts used in the production of sustainable fuels and emission control applications, and with a more conservative view of overall demand fundamentals in the second half of 2024, we are revising our guidance for full-year 2024 Adjusted EBITDA to a range of $230 million to $245 million. Despite the uncertain conditions and near-term macro-economic headwinds in a few of our product lines, we remain confident in the long-term growth trajectory of our business. Ecovyst still expects to generate higher year-over-year Adjusted Free Cash Flow while continuing to make the investments that support future growth," Bitting said.

Based upon the Company's view of business conditions and demand trends as of today, the Company's revised guidance for full year 2024 is as follows:

• Sales of $700 million to $740 million (change from $715 million to $755 million)

• Sales of $115 million to $135 million (change from $145 million to $165 million) for proportionate 50% share of Zeolyst Joint Venture, which is excluded from GAAP Sales

• Full year 2024 Adjusted EBITDA¹ of $230 million to $245 million (change from $255 million to $275 million)

• Free Cash Flow¹ of $75 million to $85 million (change from $85 million to $105 million)

• Capital expenditures of $70 million to $80 million

• Interest expense of $48 million to $52 million (change from $45 million to $55 million)

• Depreciation & Amortization

  • Ecovyst - $88 million to $92 million (change from $85 million to $95 million)

  • Zeolyst J.V. - $12 million to $14 million

• Effective tax rate in the mid 20% range

• Full year 2024 Adjusted Net Income¹ of $53 million to $74 million, with Adjusted Diluted Income per share of $0.45 to $0.63.

The Company's guidance for third quarter 2024 is as follows:

• Q3 2024 Adjusted EBITDA¹ of $58 million to $65 million

• Q3 2024 Adjusted Net Income¹ of $14 million to $21 million, with Adjusted Diluted Income per share of $0.12 to $0.18.

¹In reliance upon the unreasonable efforts exemption provided under Item 10(e)(1)(i)(B) of Regulation S-K, the Company is not able to provide a reconciliation of its non-GAAP financial guidance to the corresponding GAAP measures without unreasonable effort because of the inherent difficulty in forecasting and quantifying certain amounts necessary for such a reconciliation such as certain non-cash, nonrecurring or other items that are included in net income and EBITDA as well as the related tax impacts of these items and asset dispositions / acquisitions and changes in foreign currency exchange rates that are included in cash flow, due to the uncertainty and variability of the nature and amount of these future charges and costs. Because this information is uncertain, the Company is unable to address the probable significance of the unavailable information, which could be material to future results.

Stock Repurchase Authorization

In April 2022, the Company's Board of Directors approved a stock repurchase program authorizing the repurchase of up to $450.0 million of the Company's outstanding common stock over the next four years. To date, repurchases under the program have been funded using cash on hand and cash generated from operations, with repurchases conducted through negotiated transactions with the Company's equity sponsors, as well as through open market repurchases. Future repurchases may also be conducted through negotiated transactions, open market repurchases or other means, including through Rule 10b-18 trading plans or through the use of other techniques such as accelerated share repurchases.

During the second quarter of 2024, the Company repurchased 552,081 shares of its common stock on the open market at an average price of $9.05 per share, for a total cost of $5.0 million.

During the second quarter of 2023, in connection with a secondary offering of the Company's common stock in May 2023, the Company repurchased 4,000,000 shares of its common stock sold in the offering from the underwriter at a price of $10.88 per share concurrently with the closing of the offering, for a total of $43.5 million.

For possible future repurchases, the actual timing, number, and nature of shares repurchased will depend on a variety of factors, including stock price, trading volume, and general business and market conditions. The repurchase program does not obligate the Company to acquire any number of shares in any specific period, or at all, and the repurchase program may be amended, suspended or discontinued at any time at the Company's discretion. As of June 30, 2024, $229.6 million was available for share repurchases under the program.

Conference Call and Webcast Details

On Thursday, August 1, 2024, Ecovyst management will review the second quarter results during a conference call and audio-only webcast scheduled for 11:00 a.m. Eastern Time.

Conference Call: Investors may listen to the conference call live via telephone by dialing 1 (800) 343-5419 (domestic) or 1 (203) 518-9731 (international) and use the participant code ECVTQ224.

Webcast: An audio-only live webcast of the conference call and presentation materials can be accessed at https://investor.ecovyst.com. A replay of the conference call/webcast will be made available at https://investor.ecovyst.com/events-presentations.

Investor Contact:

Gene Shiels
(484) 617-1225
gene.shiels@ecovyst.com

About Ecovyst Inc.

Ecovyst Inc. and subsidiaries is a leading integrated and innovative global provider of advanced materials, specialty catalysts and services. We support customers globally through our strategically located network of manufacturing facilities. We believe that our products and services contribute to improving the sustainability of the environment.

We have two uniquely positioned specialty businesses: Ecoservices provides sulfuric acid recycling to the North American refining industry for the production of alkylate and provides high quality and high strength virgin sulfuric acid for industrial and mining applications. Ecoservices also provides chemical waste handling and treatment services, as well as ex-situ catalyst activation services for the refining and petrochemical industry. Advanced Materials & Catalysts, through its Advanced Silicas business, provides finished silica catalysts, catalyst supports and functionalized silicas necessary to produce high performing plastics and to enable sustainable chemistry, and through its Zeolyst Joint Venture, innovates and supplies specialty zeolites used in catalysts that support the production of sustainable fuels, remove nitrogen oxides from diesel engine emissions and that are broadly applied in refining and petrochemical process. For more information, see our website at https://www.ecovyst.com.

Presentation of Non-GAAP Financial Measures

In addition to the results provided in accordance with U.S. generally accepted accounting principles ("GAAP") throughout this press release, the Company has provided non-GAAP financial measures — Adjusted EBITDA, Adjusted EBITDA Margin, Adjusted Net Income, Free Cash Flow, Adjusted Free Cash Flow, Adjusted Diluted Income per share, Net Debt to Net Income ratio and Net Debt Leverage Ratio (collectively, "Non-GAAP Financial Measures") — which present results on a basis adjusted for certain items. The Company uses these Non-GAAP Financial Measures for business planning purposes and in measuring its performance relative to that of its competitors. The Company believes that these Non-GAAP Financial Measures are useful financial metrics to assess its operating performance from period-to-period by excluding certain items that the Company believes are not representative of its core business. These Non-GAAP Financial Measures are not intended to replace, and should not be considered superior to, the presentation of the Company's financial results in accordance with GAAP. The use of the Non-GAAP Financial Measures terms may differ from similar measures reported by other companies and may not be comparable to other similarly titled measures. These Non-GAAP Financial Measures are reconciled from the respective measures under GAAP in the attached appendix.

Zeolyst Joint Venture

The Company's zeolite catalysts product group operates through its Zeolyst Joint Venture, which is accounted for as an equity method investment in accordance with GAAP. The presentation of the Zeolyst Joint Venture's sales represents 50% of the sales of the Zeolyst Joint Venture. The Company does not record sales by the Zeolyst Joint Venture as revenue and such sales are not consolidated within the Company's results of operations. However, the Company's Adjusted EBITDA reflects the share of earnings of the Zeolyst Joint Venture that have been recorded as equity in net income from affiliated companies in the Company's consolidated statements of income for such periods and includes Zeolyst Joint Venture adjustments on a proportionate basis based on the Company's 50% ownership interest. Accordingly, the Company's Adjusted EBITDA margins are calculated including 50% of the sales of the Zeolyst Joint Venture for the relevant periods in the denominator.

Note on Forward-Looking Statements

Some of the information contained in this press release constitutes "forward-looking statements." Forward-looking statements can be identified by words such as "anticipates," "intends," "plans," "seeks," "believes," "estimates," "expects," "projects" and similar references to future periods. Forward-looking statements are based on our current expectations and assumptions regarding our business, the economy and other future conditions. Because forward-looking statements relate to the future, they are subject to inherent uncertainties, risks and changes in circumstances that are difficult to predict. Examples of forward-looking statements include, but are not limited to, statements regarding our future results of operations, financial condition, capital expenditure projects, liquidity, prospects, growth, strategies, capital allocation program (including the stock repurchase program), product and service offerings, expected demand trends, our third quarter 2024 financial outlook and our 2024 financial outlook. Our actual results may differ materially from those contemplated by the forward-looking statements. We caution you, therefore, against relying on any of these forward-looking statements. They are neither statements of historical fact nor guarantees or assurances of future performance. Important factors that could cause actual results to differ materially from those in the forward-looking statements include, but are not limited to, regional, national or global political, economic, business, competitive, market and regulatory conditions, including tariffs and trade disputes, currency exchange rates, the effects of inflation and other factors, including those described in the sections titled "Risk Factors" and "Management's Discussion & Analysis of Financial Condition and Results of Operations" in our filings with the SEC, which are available on the SEC's website at www.sec.gov. These forward-looking statements speak only as of the date of this release. Factors or events that could cause our actual results to differ may emerge from time to time, and it is not possible for us to predict all of them. We undertake no obligation to update any forward-looking statement, whether as a result of new information, future developments or otherwise, except as may be required by applicable law.

 

 

 

 

 

 

 

 

 

 

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SOURCE Ecovyst Inc.