Trends

Ecovyst Inc. (ECVT) Q4 2022 Earnings Call Transcript

Trending 1 year ago
beritaja.com

Ecovyst Inc. (NYSE:ECVT) Q4 2022 Earnings Conference Call February 28, 2023 11:00 AM ET

Company Participants

Gene Shiels - Director of Investor Relations

Kurt Bitting - Chief Executive Officer and Director

Mike Feehan - Chief Financial Officer

Conference Call Participants

John McNulty - BMO

Aleksey Yefremov - KeyBanc Capital Markets

Patrick Cunningham - Citi

David Begleiter - Deutsche Bank

Hamed Khorsand - BWS

Daniel Rizzo - Jefferies

David Silver - CLK

Operator

Good morning. My sanction is Shelby, and I will beryllium your convention usability today. Welcome to Ecovyst' Fourth Quarter 2022 Earnings Call and Webcast. Please statement today's telephone is being recorded and should tally astir 1 hour. Currently, each participants person been placed successful a listen-only mode to forestall immoderate inheritance noise. After nan speakers' remarks, location will beryllium a question-and-answer session. [Operator Instructions].

I would now for illustration to manus nan convention complete to Gene Shiels, Director of Investor Relations. Please spell ahead.

Gene Shiels

Thank you, Shelby. Good morning, and invited to Ecovyst's Fourth Quarter and Full-Year 2022 Earnings Call. With maine connected nan telephone this greeting are Kurt Bitting, Chief Executive Officer; and Mike Feehan, Ecovyst's Chief Financial Officer. Following our prepared remarks this morning, we look guardant to taking your questions. Please statement that immoderate of nan accusation shared coming is forward-looking information, including accusation astir nan company's financial and operating performance, strategies aliases anticipated end-use request trends and our 2023 financial outlook.

This accusation is taxable to risks and uncertainties that could origin existent results and nan implementation of nan company's plans to alteration materially. Any forward-looking accusation we stock coming speaks only arsenic of this date. These risks are discussed successful nan company's filings pinch nan SEC. Reconciliations of non-GAAP financial measures mentioned connected today's telephone pinch their corresponding GAAP measures tin beryllium recovered successful our net merchandise and successful position materials posted successful nan Investors conception of our website astatine ecovyst.com.

Now I'd for illustration to move nan telephone complete to Kurt Bitting. Kurt?

Kurt Bitting

Thank you, Gene, and bully morning. First, I want to return nan opportunity to convey each of my colleagues astatine Ecovyst for their dedication and difficult work. Their efforts to supply awesome products and services to our weighted customers, enabled nan beardown financial results that we delivered successful Q4 and for full-year 2022.

During nan 4th quarter, nan favorable request fundamentals we knowledgeable passim nan first 9 months of 2022 continued, providing for a beardown decorativeness to nan twelvemonth contempt nan disruption associated pinch Winter Storm Elliott precocious successful nan 4th quarter. During nan 4th quarter, precocious refinery utilization successful nan U.S. continued to construe into beardown request for our regeneration services. In addition, underlying request for virgin sulfuric acerb besides remained firm. Although 4th fourth income were beneath nan highly precocious level of income we knowledgeable successful nan 4th fourth of 2021. This was owed successful portion to nan effect of customer downtime arsenic good arsenic our downtime and related accumulation constraints arising from Winter large wind Elliot, which constricted our expertise to afloat fulfill nan charismatic spot request successful nan quarter.

In our Catalyst Technologies business, during nan 4th quarter, we saw accrued request for renewable substance and hydrocracking catalysts, while income of polyethylene catalysts were little than nan year-ago quarter, successful portion owed to nan timing of shipments astatine year-end. As a result, full income for nan 4th fourth of 2022 were up 8% compared to Q4 2021 and consolidated adjusted EBITDA of $69 cardinal was up 9% versus nan year-ago quarter.

In ray of these beardown 4th fourth results, we delivered full-year 2022 adjusted EBITDA of $277 million. That was up 22% compared to 2021 and supra our antecedently raised guidance range. Our favorable financial results provided for meaningful rate procreation successful nan quarter, enabling accrued shareholder worth associated pinch nan $63 cardinal repurchase of banal successful conjunction pinch different successful secondary offering. Through nan offering, we repurchased 8 cardinal of nan shares offered by a backstage equity sponsor helping to trim their ownership of Ecovyst to little than 10%.

On a full-year basis, beardown rate procreation facilitated nan simplification of our nett indebtedness leverage ratio to 2.8x while astatine nan aforesaid time, we accrued shareholder worth pinch $137 cardinal worthy of stock repurchases. We ended nan twelvemonth pinch a beardown equilibrium expanse and pinch $171 cardinal of liquidity positioning america good to seizure maturation opportunities successful 2023.

In position of nonfinancial achievements, successful 2022, we proceed to position Ecovyst for early maturation arsenic a cardinal supplier, enabling greener and much sustainable technologies. While our attraction connected sustainability applies to products, services and exertion development, process betterment is of adjacent value arsenic we attraction connected our near-term and longer-term sustainability objectives. As grounds of our ongoing committedness to sustainability and successful nan tone of continual improvement, we precocious achieved a golden sustainability standing from EcoVadis, which places Ecovyst successful nan 97th percentile of each companies rated successful our adjacent group. We are pleased to person this distinction, which we judge validates our ongoing efforts to beforehand much sustainable practices.

We expect 2023 to beryllium different twelvemonth of maturation for Ecovyst arsenic we build upon our successes successful 2022. As noted, we judge nan request fundamentals that contributed to our 2022 results will proceed this year, providing for incremental maturation opportunities. In particular, pinch our starring proviso stock positions, we judge we person charismatic integrated maturation opportunities associated pinch expanding request for debased c and much sustainable technologies. As a starring supplier of sulfuric acerb regeneration services for nan refining manufacture and arsenic a starring supplier of virgin sulfuric acerb to a wide scope of business applications, Ecoservices is positioned for maturation successful 2023.

Our regeneration services are basal to our customers' accumulation of alkylate, a high-value gasoline blending component. We expect that favorable home request for refined products successful 2023 successful performance pinch expanding needs for higher octane, cleaner burning premium fuels and beardown export request will proceed to support alkylate accumulation and thrust request for our regeneration services this year.

In addition, we expect marketplace request for virgin sulfuric acerb to summation successful 2023 pinch affirmative request fundamentals for galore business extremity users utilizing virgin sulfuric acerb arsenic a superior earthy material. This year, we expect sulfuric acerb request successful nan mining assemblage to beryllium strong. In ray of nan world proviso shortage for copper and pinch expanding request for copper to support electrification and greenish infrastructure objectives, including electrical conveyance production, charging web description and nan tie-in of upwind and star technologies, mining activity for copper is expected to increase, driving incremental request for sulfuric acerb required for leaching operations.

In addition, mining activity for borates is expected to beryllium stable, supported by request successful a highly diversified scope of end-use applications. Given our proviso sources successful nan Gulf Coast and West Coast, we are good suited to service our mining customers successful nan Southwest. In position of different extremity users driving request for sulfuric acid, Ecoservices is nan largest shaper of Oleum, a supersaturated sulfuric acerb utilized successful nan accumulation of nylon and engineered plastics for building materials and coatings and packaging applications and successful automotive applications for conveyance lightweighting.

We besides supply electrolyte grades utilized successful petrochemical and chemic processes, semiconductor production, lead acerb batteries and water-treatment applications, each of which are expected to thrust incremental request for virgin sulfuric acerb successful 2023. For our Catalyst Activation Business, we expect different beardown twelvemonth for Chem32, a supplier of off-site catalyst activation services. As a reminder, Chem32 is simply a world supplier of ex-situ activation services, which is preferred complete on-site activation because it reduces nan customers' assets requirements and downtime. We expect Chem32 to use this twelvemonth from maturation successful renewable substance accumulation capacity and alteration outs arsenic good arsenic from income and alteration retired of hydroprocessing catalysts.

And pursuing a very bully twelvemonth successful 2022 for our curen services business, we expect different beardown twelvemonth successful 2023. As nan only North American sulfur acerb shaper pinch nan permits successful spot to dainty hazardous discarded streams regulated by RCRA, nan Resource Conservation and Recovery Act, we are uniquely positioned for further opportunities to service nan refining and petrochemical industries successful nan Gulf Coast. Our curen services are a compelling replacement to long-haul trucking and heavy good disposal for our customers and Ecoservices gains from nan beneficial usage of nan power worth successful nan discarded streams.

Turning to Catalyst Technologies. We expect 2023 to beryllium an inflection constituent for our Catalyst business. We expect broad-based maturation crossed galore of our Catalyst Technologies. For polyethylene and niche civilization catalysts, we proceed to expect request maturation successful 2023. Over nan past fewer years, our civilization polyethylene catalyst solutions which are designed to meet circumstantial customer criteria person enjoyed maturation rates astir doubly that of underlying polyethylene demand. We person had beardown stock information successful newer, much cost-efficient capacity additions complete nan past fewer years, which we judge will support higher utilization rates comparative to older capacity that is higher connected nan costs curve.

For 2023, we expect continued request maturation successful nutrient and packaging applications pinch stronger wide request successful nan backmost half of nan twelvemonth arsenic export request into China and Europe improves. For hydrocracking catalysts, we expect beardown income maturation successful 2023. The hydrocracking catalyst produced by our associated venture, Zeolyst springiness refiners nan expertise to deed desired output targets to maximize portion profitability. As we person discussed previously, we judge income of hydrocracking catalysts successful 2022 were impacted by turnaround delays arsenic our refining customers sought to support lofty operating rates successful nan look of highly precocious refining margins.

As a consequence of these turnaround deferrals, we judge immoderate catalyst income were pushed into this year. In addition, we expect refinery utilization successful nan U.S. will stay elevated successful 2023, supported by debased merchandise inventories and robust export request to Latin America and Europe wherever refined merchandise accumulation has been adversely impacted by nan Russian-Ukraine conflict. In 2022, our income of emanation power catalysts were constricted by a important backlog successful heavy-duty diesel conveyance deliveries related to nan spot shortage arsenic good arsenic proviso concatenation and logistics limitations.

This year, we expect that nan betterment successful spot proviso and expanding accumulation and transportation against nan important backlog will lend to higher income of emanation power catalysts. And lastly, we judge income into renewable fuels will beryllium a affirmative contributor to Catalyst Technologies this year. We judge nan ongoing description successful renewable substance capacity and accumulation that I referred to arsenic being affirmative for our Chem32 business this twelvemonth will besides construe into stronger income successful nan ZI associated venture.

Renewable substance production, specifically renewable diesel accumulation and nan nascent accumulation of sustainable aviation substance is being driven by nan request to decarbonize heavy-duty proscription and aviation. As today, location are very constricted electrification alternatives successful those areas. In addition, regulatory mandates specified arsenic nan Renewable Energy Directive successful Europe and nan Inflation Reduction Act successful nan U.S. will proceed to lend to capacity and accumulation maturation for renewable fuels.

As an example, nan Inflation Reduction Act has accrued incentives for accumulation of SAF aliases sustainable aviation substance which we judge will go a meaningful constituent of renewable substance accumulation successful nan 2025 to 2026 clip framework arsenic airlines prosecute their c simplification goals. Having conscionable walked done a number of extremity users expected to turn successful 2023, you whitethorn person noticed a communal threat. All are associated pinch nan request for much sustainable technologies.

We judge Ecovyst remains uniquely positioned to thief meet nan world's expanding request for greenish infrastructure and sustainable technologies. As a cardinal supplier of products and services that are basal to nan advancement of low-carbon technologies, a mostly of our income reside customer and user needs for much sustainable products and services. Broad sustainability objectives, specified arsenic cleaner air, reduced conveyance emissions, accrued electrification and nan information plastics economy, each supply opportunities for Ecovyst to leverage its method expertise and merchandise portfolio.

In addition, they supply opportunities for much meaningful integrated maturation this twelvemonth and successful nan future. With this successful mind, our superior attraction for R&D finance is successful merchandise invention linked to sustainability. However, our committedness to sustainability extends beyond our merchandise and work offering. In position of nan environment, we person committed to meaningful reductions successful greenhouse state emissions and reductions successful hazardous waste, pinch clear targets group for 2025 and 2030.

We are besides committed to nan information of our labor and being responsible stewards successful nan communities successful which we operate. At Ecovyst, we reenforce a civilization of information and continuous betterment done our HS&E [ph] Perfect Days inaugural and done nan principles of nan American Chemistry Council's Responsible Care program. Lastly, we are highly proud that our dedication to driving much sustainable business practices passim our institution was validated by nan golden position standing that we received from EcoVadis successful 2023, which places Ecovyst successful nan 97th percentile of each companies rated successful our adjacent group.

At this time, I'll move nan telephone complete to Mike Feehan for a much elaborate chat of our 4th fourth and full-year financial results.

Mike Feehan

Thank you, Kurt. Continued favorability of marketplace fundamentals during nan 4th fourth provided nan backdrop for different coagulated quarterly capacity for Ecovyst. Total income for nan 4th quarter, including our 50% liking successful nan Zeolyst associated task were $223 million, up $16 cardinal aliases 8% compared to nan 4th fourth of 2021. The summation successful income was driven by continued pricing benefits successful our Ecoservices business associated pinch nan contractual value increases arising from higher labor, power and freight costs.

In contrast, anterior quarters, nan pass-through of sulfur costs had a minimal effect connected income successful nan 4th quarter. Fourth 4th adjusted EBITDA was $69 million, up 9% compared to nan 4th fourth of 2021, pinch nan pricing benefit, partially offset by higher adaptable costs, mostly associated pinch inflation, little income measurement successful silicon catalyst and higher turnaround costs successful Ecoservices.

Total income for nan full-year, including nan Zeolyst associated task were $953 million, up 28% compared to 2021, pinch nan summation reflecting higher pricing, including nan pass-through of higher sulfur costs and higher income measurement successful some Ecoservices and Catalyst Technologies. Of nan summation successful sales, $85 cardinal is associated straight pinch nan pass-through of higher sulfur costs wrong nan Ecoservices business, which negatively impacted margins by 280 ground points.

The beardown pricing and measurement maturation resulted successful adjusted EBITDA maturation of astir $50 cardinal aliases 22%. In addition, we generated $146 cardinal of adjusted free rate travel during nan year, starring to a rate conversion ratio of conscionable nether 80%. And aft deploying $137 cardinal of superior for stock repurchases, we reduced our nett leverage ratio by 0.5 move to 2.8x.

Moving to nan adjacent slide, we'll return a deeper look into nan drivers of our 4th fourth adjusted EBITDA growth. The summation successful 4th fourth adjusted EBITDA was chiefly driven by $30 cardinal of pricing benefits. These value increases were mostly associated pinch scale pass-through of higher labor, power and freight costs successful Ecoservices arsenic good arsenic value increases enacted done nan twelvemonth successful Catalyst Technologies. These value increases much than offset nan higher adaptable costs, driving different 4th of affirmative price-to-cost ratio.

In addition, nan quarterly results were impacted by little bulk virgin sulfuric acerb income driven by little spot sales, planned customer turnarounds and nan effect of Winter Storm Elliot arsenic good arsenic an unfavorable operation effect successful Silica Catalysts.

Turning to Slide 12. Fourth 4th 2022 income for Ecoservices was $160 million, up 12.5% compared to nan 4th fourth of 2021. Sales summation was principally driven by higher pricing successful some regeneration services and virgin sulfuric acid, including nan contractual pass-through of higher labor, power and freight costs. Demand for regeneration services continued pinch higher income measurement compared to nan 4th fourth of 2021, while marketplace request for virgin sulfuric acerb remained beardown successful nan 4th quarter, income measurement was down compared to nan exceptionally beardown income measurement successful nan 4th fourth of 2021, owed successful portion to nan adverse effect of planned customer turnarounds, disruption associated pinch Winter Storm Elliott and little spot sales.

Fourth 4th adjusted EBITDA for Ecoservices was $54 million, up 4% compared to nan 4th fourth of 2021, pinch nan income use being partially offset by higher turnaround costs, of astir $3 cardinal compared to nan 4th fourth of 2021 and nan effect of Winter Storm Elliott. While nan large wind had a humble effect connected 4th fourth results, it will person a much worldly effect connected first 4th results owed to nan timing of repair costs and mislaid customer sales.

We estimate nan large wind will person an effect connected nan first 4th adjusted EBITDA of astir $7 cardinal to $8 million. The 4th fourth 2022 adjusted EBITDA separator for Ecoservices was 34%, down compared to nan 4th fourth past year, driven by nan higher turnaround costs, little virgin sulfuric acerb measurement and nan large wind effect resulting successful higher attraction costs.

Turning to nan results for Catalyst Technologies connected nan adjacent slide. Total sales, including nan Zeolyst associated task of $63 cardinal was down astir 2% compared to nan 4th fourth of 2021. Sales for nan Zeolyst associated task were up 10% successful nan 4th quarter, chiefly driven by higher income into renewable substance exertion and modestly higher income of hydrocracking catalysts. Silica Catalyst income for nan 4th fourth were $23 million, down astir $5 cardinal compared to nan year-ago quarter, chiefly owed to unfavorable operation and immoderate bid timing of polyethylene catalyst.

Fourth 4th adjusted EBITDA for Catalyst Technologies was $20 million, down $3 cardinal compared to nan 4th fourth of 2021. The diminution was chiefly driven by nan little polyethylene income and higher costs from continued inflationary pressures, including higher power and proscription costs. With respect to inflationary pressures, complete nan people of 2022, we saw notable ostentation successful earthy materials arsenic good arsenic successful power and proscription costs.

While we proactively implemented value increases, nan utmost spikes successful power and earthy worldly costs were not afloat reflected successful our short-term pricing actions. In addition, complete nan people of 2022, we incurred elevated water and freight costs associated pinch logistical delays, which we judge are mostly nonrecurring.

Turning to nan adjacent slide, a fewer comments connected leverage and liquidity. Throughout 2022, our beardown rate procreation capacity continued to supply for important superior allocation elasticity pinch free rate travel of $146 cardinal and a rate conversion ratio of astir 80%, we were capable to comfortably money our superior expenditure programs and usage $137 cardinal of rate to summation shareholder worth done our stock repurchases while reducing our nett leverage ratio from 3.3x astatine nan extremity of past twelvemonth to 2.8x astatine nan extremity of this year.

At year-end, we had full liquidity of $171 million, comprised of rate of $111 cardinal and readiness nether our ABL installation of $60 million. We judge our beardown liquidity position and beardown rate procreation let america continued elasticity successful our superior allocation strategy.

Turning to Slide 15. In conjunction pinch nan secondary offering successful November, we repurchased 8 cardinal shares of our communal banal sold for $63 million, including repurchase activity successful nan 2nd and 3rd quarters of past twelvemonth done unfastened marketplace repurchases and a secondary offering successful August. For nan full-year, we repurchased 16.5 cardinal shares for $137 million. Our equilibrium expanse remains beardown pinch only 1 tranche of indebtedness maturing successful 2028.

As such, we judge we tin proceed to put successful operational improvements and integrated maturation initiatives while retaining nan elasticity to prosecute charismatic and accretive acquisition opportunities that tin complement our existing business and our integrated maturation objectives.

Turning to our full-year 2023 outlook connected nan adjacent slide. Overall, we expect request trends to stay affirmative successful 2023, and we expect this to construe into apical statement maturation for some Ecoservices and Catalyst Technologies. We expect 2023 income to beryllium betwixt $760 cardinal and $790 million. This reflects nan estimated pass-through effect of little sulfur costs of astir $95 million. Adjusting for nan sulfur pass-through impact, income growth, including nan Zeolyst associated task sales, would beryllium 7%, assuming nan midpoint of nan guidance.

In Ecoservices, adjusting for nan estimated $95 cardinal of pass-through sulfur costs impact, we expect mid-single-digit maturation successful income contempt nan little measurement resulted from Winter Storm Elliott. For Catalyst Technologies, we expect sales, including our proportionate stock of nan Zeolyst associated task income to bespeak little -- debased -- sorry, bespeak debased double-digit maturation successful 2023. For Silica Catalysts, we expect income of polyethylene catalysts to beryllium up connected a mid- to high-teens percent ground successful 2023, offset by little income of niche civilization catalysts compared to a very beardown 2022.

For nan Zeolyst associated venture, we expect income to beryllium up 10% to 15%, driven by beardown maturation successful hydrocracking and emanation power catalysts, up connected a precocious teens percent basis, and higher income of renewable substance catalysts up connected a mid-teens percent basis. For 2023, we are guiding adjusted EBITDA of $285 cardinal to $300 million. which would connote a maturation of astir 6% astatine nan midpoint compared to 2022.

However, this guidance incorporates our anticipation that Winter Storm Elliott will person an adverse effect connected first 4th adjusted EBITDA of astir $7 cardinal to $8 million. Excluding nan effect of Winter Storm Elliott, we would, therefore, person expected 2023 adjusted EBITDA maturation astatine nan midpoint of nan guidance scope to beryllium higher by complete 200 ground points.

Given nan effect of Winter Storm Elliott, Ecoservices adjusted EBITDA maturation is expected to beryllium successful nan low-single-digits. If you exclude nan large wind impact, we would person expected mid-single-digit growth. And past pinch nan beardown income growth, we expect Catalyst Technologies adjusted EBITDA to turn betwixt 10% and 15%. Given our 2023 expectations for adjusted EBITDA, we expect adjusted free rate travel to beryllium successful nan scope of $115 cardinal to $130 million.

While nan summation successful EBITDA will consequence successful nan procreation of further rate flow, we expect higher moving superior usage compared to 2022, on pinch somewhat higher superior spending, liking and taxes. Our higher superior expenditures scope of $60 cardinal to $70 cardinal successful 2023 compared to 2022 reflects higher maturation capital, chiefly successful our catalyst business. And for liking expense, we are projecting a scope of $40 cardinal to $50 million, reflecting higher rates successful 2023.

Having provided an outlook for nan full-year of 2023, which bespeak our affirmative maturation expectations for some Ecoservices and Catalyst Technologies, I want to supply immoderate circumstantial guidance for nan first quarter. We expect first 4th 2023 adjusted EBITDA will beryllium down astir 30% compared to nan first 4th of 2022. In Ecoservices, arsenic antecedently noted, we expect that Winter Storm Elliott will person a antagonistic effect connected first 4th adjusted EBITDA of astir $7 cardinal to $8 million.

In addition, we expect a further effect related to an extended turnaround astatine 1 of our sites during nan first quarter. Prior to nan effect of nan large wind and nan extended turnaround, we anticipated Ecoservices adjusted EBITDA to beryllium comparatively successful statement pinch prior-year first 4th arsenic our continued maturation is expected to beryllium reduced by higher planned turnaround costs astatine 1 of our larger units and nan effect associated pinch planned customer turnarounds during nan first quarter.

Therefore, we expect Ecoservices adjusted EBITDA will beryllium astir 20% little compared to nan first 4th of 2022. For Catalyst Technologies, while we are expecting full-year net maturation of 10% to 15%, including stronger income of hydrocracking catalyst, we expect bid timing to beryllium a facet successful nan first quarter.

For hydrocracking catalysts, we service immoderate of nan largest refineries and individual orders are important successful dollar terms. Some orders tin beryllium larger than $10 million. For nan first quarter, we expect little income of hydrocracking and specialty catalyst driven by immoderate ample orders that are being shipped successful nan first quarter, but will apt to beryllium recognized successful nan 2nd quarter.

The bid timing will not effect full-year maturation expectations. As a result, we expect adjusted EBITDA successful Catalyst Technologies to beryllium disconnected astir 50% compared to nan first 4th of 2022. This will consequence successful Ecovyst adjusted EBITDA to beryllium up astir 30% compared to nan anterior twelvemonth first quarter. While our first 4th net are anticipated to beryllium light, driven by income timing and catalyst and nan effect from Winter large wind Elliott, we expect coagulated wide maturation for nan afloat twelvemonth successful 2023.

I'll now manus nan telephone backmost to Kirk for immoderate closing remarks.

Kurt Bitting

Thank you, Mike. We are highly proud of nan results we delivered successful 2022. Given nan economical uncertainty and inflationary pressures that prevailed passim nan year, our businesses demonstrated outstanding resilience. We vanished nan twelvemonth pinch beardown financial results contempt nan adverse effect of Winter Storm Elliott precocious successful nan 4th quarter.

Our financial capacity paved nan measurement for rate procreation and nett leverage simplification allowing america to heighten shareholder worth done important stock repurchase activity. We besides achieved a number of nonfinancial milestones arsenic we proceed to position Ecovyst for maturation successful 2023 and beyond. I want to, again, personally convey each of our labor for their dedication and their contributions that made nan successes of 2022 possible. We entered 2023 pinch solid, underlying business momentum.

Despite a grade of economical uncertainty, we maintained coagulated maturation expectations for nan year. We expect Ecoservices to proceed connected its semipermanent maturation trajectory this year. While our first 4th results will bespeak nan effect of Winter Storm Elliott and a important planned turnaround, we task maturation successful income and adjusted EBITDA for Ecoservices this year. For Catalyst Technologies, we expect higher income for hydrocracking, renewable fuel, emanation power and polyethylene catalysts this year. We judge these higher income coupled pinch little inflationary pressures and incremental pricing actions will construe into coagulated year-over-year growth.

As Mike referenced, we expect 2023 to beryllium different beardown twelvemonth for rate generation, and this will proceed to alteration our elastic superior allocation strategy, which is intended to thrust maturation and summation shareholder returns. In closing, we are highly assured successful our expertise to present maturation again successful 2023, and we look guardant to updating you connected our advancement passim nan year.

With that, we will inquire nan usability to unfastened nan statement for questions.

Question-and-Answer Session

Operator

[Operator Instructions]. We'll return our first mobility from John McNulty pinch BMO.

John McNulty

Maybe nan first 1 conscionable connected nan wintertime large wind effect that you're calling retired for nan first quarter, nan $7 cardinal to $8 cardinal aliases so. Can you thief america to understand really overmuch of that's tied to nan repair and attraction costs versus nan measurement loss? And past connected nan measurement nonaccomplishment portion, is that thing you tin make backmost arsenic we benignant of advancement done nan year? Or is it hey, look, you either person it and you tin nutrient it and present it aliases you can't and they spell location else. Like I guess, really should we beryllium reasoning astir that?

Michael Feehan

Hey, John, acknowledgment for your question. This is Mike. I would estimate that astir half of nan effect is mislaid income compared to half being much repair maintenance. We do -- we person built successful immoderate catch-up into our guidance for nan year. So we still judge that we're going to beryllium beardown for our wide results for Ecoservices successful nan mid-single digits, excluding that impact, but it is built into our guidance for nan year.

John McNulty

Got it. Got it. And past possibly conscionable a follow-up. So early connected successful your prepared remarks, you benignant of walked done each nan positives [indiscernible], I mean it sounds for illustration everything benignant of has a bunch of positives going guardant from extremity marketplace demand, apparently being benignant of nan large driver of it. I get nan wintertime large wind impact, obviously, is simply a small spot of a setback. But I conjecture I'm a small spot amazed pinch each nan maturation drivers, moreover immoderate of nan pent-up request for, say, immoderate of nan Catalyst business that you're only guiding to 6% EBITDA maturation astatine benignant of nan midpoint of nan range.

So are location different bad guys that we should beryllium reasoning astir successful position of either costs aliases what person you? I mean it sounds for illustration immoderate are really coming down. So I guess, I conscionable can't rather reconcile nan benignant of EBITDA growth. So possibly tin you thief america to deliberation astir possibly what different bad guys mightiness beryllium retired location that we should beryllium considering?

Kurt Bitting

Yes. I mean John, this is Kurt. Thanks for nan question. No, I mean, we're really assured successful nan growth, arsenic you said, for nan awesome segments. When you look astatine Catalyst Technologies, polyethylene, renewables, hydrocracking, each showing debased double-digit type growth. And past erstwhile you spell complete to Ecoservices, it's really that it's that large wind effect successful nan first quarter. So regeneration services proceed to person beardown request pinch beardown refining economics, beardown refining utilization successful nan first 4th and really projected done nan year.

And past really -- and bully underlying request maturation really for virgin sulfuric acid. It's really conscionable that virgin acerb benignant of setback successful Q1 that's really related to that large wind and nan mislaid measurement and nan attraction costs associated pinch that.

John McNulty

Got it. Okay. Thanks for nan color. Appreciate it.

Operator

And we'll return our adjacent mobility from Aleksey Yefremov pinch KeyBanc Capital Markets.

Aleksey Yefremov

I want to wanted to inquire you astir Catalyst Technologies. The precocious watermark for EBITDA was $108 cardinal successful 2019, and each consequent twelvemonth was beneath that level successful '22, you did $78 million. How do you position that 108 level? Was this unsustainable? Or was it thing that could beryllium target that you could execute and transcend successful nan agelong run? And erstwhile could that be, if that's nan case.

Kurt Bitting

Yes, hullo Aleksey. Thanks for nan question. So conscionable referring backmost to that twelvemonth 2019 successful Catalyst Technologies was really a precocious watermark, really, for hydrocracking catalyst. It was benignant of a highest change-out twelvemonth and past our niche civilization catalyst arsenic good had a very beardown year. When we look astatine Catalyst Technologies for 2023, nan maturation location is really being driven by nan awesome segments successful nan business. Again, polyethylene, renewables, hydrocracking and emanation controls are each had really coagulated maturation successful those -- successful their secular trends.

2022, I would say, was impacted by a mates of things, right? We said location isn't precocious refinery margins and really precocious utilization successful those refineries delayed turnaround. So arsenic we look astatine hydrocracking going forward, I mean it whitethorn not -- it whitethorn beryllium smoother than it was possibly successful nan past because you had nan pandemic, which had debased utilization rates, now you're coming into an era wherever there's very precocious utilization rates. So we decidedly cognize 2022 was impacted by those precocious utilization rates successful hydrocracking.

And past we had nan spike successful power costs astatine midyear and past really, arsenic Mike talked about, immoderate one-time freight interplant logistics that will really time off you nonrecurring. So we position that astir of those headwinds that we saw successful 2022 are down us, and we really consciousness that nan conception is going to beryllium very patient successful 2023.

Aleksey Yefremov

And possibly arsenic a follow-up, really would you look astatine 2023 EBITDA successful this segment? Is this somewhat beneath normalized level, supra aliases astatine normalized benignant of tin you framework it comparative to nan rhythm of separator normalization and possibly nan catalyst reload rhythm astatine your various customers?

Kurt Bitting

Yes. I mean I'll commencement conscionable really possibly connected nan catalyst rhythm reload. I mean, I deliberation -- again, I deliberation we spot beardown growth. I mean, we spot debased double-digit maturation astatine slightest successful each nan awesome segments there. I wouldn't needfully opportunity it's -- we tin telephone it a highest twelvemonth successful hydrocracking because again, it's different twelvemonth of precocious refining utilization projections and precocious refining margins.

So arsenic we saw immoderate catalyst hydrocracking income push from '22 into '23, that could very good hap arsenic good successful nan '23 and '24. And truthful that rhythm is simply a small spot much of chartless than it has been successful nan past conscionable because of nan pandemic and nan precocious utilization rates that person happened. But we proceed to see, again, very beardown maturation successful galore of nan regions. I didn't -- I near retired renewable fuels arsenic well, renewable fuels accumulation increasing astir 20% per year, which is going to construe into immoderate bully income maturation for america arsenic well.

Aleksey Yefremov

Great. Thanks a lot.

Operator

We'll return our adjacent mobility from P.J. Juvekar pinch Citi.

Patrick Cunningham

Hi, bully morning. This is Patrick Cunningham connected for PJ. You referenced your geographic footprint successful virgin comparative to nan dense mining industry. And I cognize lithium is simply a comparatively mini portion of your business and conscionable a mini portion of lithium supplies successful nan U.S. successful general. Is location capable imaginable request to warrant adding caller capacity aliases expanding existing capacity, possibly Southeastern U.S. I deliberation I'm conscionable trying to understand nan measurement potential, what mightiness beryllium nan differences, say, comparative to copper [indiscernible]?

Kurt Bitting

Yes. So acknowledgment for nan question, Patrick. That's a really bully one. So arsenic you outlined, we do person -- we for illustration to opportunity we person our plants benignant of triangulate nan mining assemblage successful nan U.S., right, betwixt nan Northern California, Southern California and nan Gulf Coast location. So erstwhile you look astatine mining, obviously, mining is really benignant of nan backbone materials required for each nan electrification and greenish infrastructure. As you referred to copper lithium borates. Copper usage is -- accepted copper leaching uses astir 3 to 5 tons of sulfuric acerb per ton of copper produced.

A lithium is overmuch higher successful nan realm of 20 tons. So arsenic you look astatine nan lithium accumulation that's projected aliases really needed to benignant of powerfulness nan electrification and greenish infrastructure going forward, it's going to require immense amounts of sulfuric acid, overmuch much than copper aliases borates, right? It conscionable uses a overmuch higher magnitude of sulfuric acid. So we expect that will proceed to thrust request for sulfuric acerb going forward.

Patrick Cunningham

Great. Thanks. And past conscionable connected nan higher CapEx number, which parts of nan catalyst business is that being directed? And would I beryllium correct successful assuming that you mightiness person a bias towards nan catalyst business successful position of imaginable bolt-ons? Thanks.

Kurt Bitting

Yes. That's different bully question. I'll return nan first portion there. Our maturation superior is geared towards nan catalyst business. There are immoderate bully opportunities successful nan polyethylene catalyst marketplace arsenic good arsenic successful our Zeolyst associated task that we're continuing to look at. There is thing that we're continuing to judge that there's beardown maturation wherever we will proceed to put organically successful nan Catalyst business.

Yes. I deliberation it looks successful position of inorganic growth, we look astatine Ecovyst, we for illustration each nan segments that we serve, right? I mean we present unsocial and customized products and services, really nan bluish spot refining, petchem, mining and catalysts and awesome business consumers, and we really for illustration these segments. So immoderate opportunity to grow our offerings successful these areas aliases adjacent to nan areas is going to beryllium absorbing to us. So we're really assured that we tin thrust worth successful an acquisition either by leveraging our operational expertise, method know-how aliases customer relationships successful either of nan businesses, not conscionable Catalyst Technologies.

Patrick Cunningham

Great. Thank you.

Operator

We'll return our adjacent mobility from David Begleiter pinch Deutsche Bank.

David Begleiter

Thank you. Kurt, you touched connected superior allocation this year. But reasoning astir nan usage of nan free rate for indebtedness salary down, what -- tin you talk astir really overmuch we should expect? Or what are nan priorities too that simplification this year?

Kurt Bitting

Yes. So convey you for nan question. So we'll spell measurement backmost really -- 2022, we've repurchased astir $137 cardinal worthy of stock, expanding nan worth to nan shareholders. So we're really -- we're proud of that fact, we are capable to execute that and support our nett leverage ratio astatine that 2.8x. It really trim it to nan -- and past support it astatine that 2.8x.

So arsenic I conscionable said, we really powerfully judge successful nan secular maturation trends successful our businesses. So moving guardant pinch our rate generation, we're going to proceed to put successful our businesses and turn them some organically and inorganically arsenic we deliberation there's awesome opportunities there. And past secondly, we besides person that committee stock repurchase authorization that I conscionable mentioned that we proceed -- that we tin proceed to usage to present worth to shareholders.

David Begleiter

Understood. And conscionable connected sulfuric acid, apologies if I missed this. Is location imaginable to adhd capacity organically aliases moreover perchance bargain immoderate much capacity fixed nan robust extremity marketplace maturation you've talked about?

Kurt Bitting

Yes. We're ever -- we person aggregate projects astatine immoderate fixed clip looking to debottleneck our existing assets, right? So we've talked astir earlier we debottleneck logistics assets. We person nan expertise to debottleneck and region restrictions connected our existing plants and push more, I guess, much sulfur capacity done nan plants to make much sulfuric acid. And we emotion nan sulfuric acerb industry. We've been successful it for 120 years. So we're ever looking to turn our accumulation capacity wherever we can.

David Begleiter

Thank you.

Operator

And we'll return our adjacent mobility from Hamed Khorsand pinch BWS.

Hamed Khorsand

Hi, bully morning. Could you conscionable elaborate connected fixed nan reduced accumulation successful Q1, are you looking to ramp up accumulation beyond nameplate capacity to drawback up pinch sales? And really are you going astir landing caller customers erstwhile you person this benignant of headwind successful Q1 arsenic acold arsenic accumulation is concerned?

Kurt Bitting

Yes, Hamed, acknowledgment for nan question. So nan accumulation we work our customers really done a web of facilities. So erstwhile we person turnarounds and we person outages that are caused by weather-related events, we proceed to proviso pinch our existing web capacity. The utilization crossed our web arsenic good arsenic nan sulfuric acerb marketplace successful wide is very high. So contracts successful that business thin to beryllium longer term. So erstwhile we look astatine our customer base, we're mostly successful a position successful virgin plus pinch customers anyplace from 1 to 7 years. So we look astatine those arsenic -- those customers motion up pinch america for a agelong play of time. We made commitments to them complete a 1 to seven-year play and proviso them from immoderate works that we request to -- if we person a definite portion down, we tin conscionable evidently proviso either from nan different portion astatine that tract aliases further plants successful our network.

Hamed Khorsand

And my different mobility was connected refinery utilization rates person been elevated for rather immoderate time. Does this structurally alteration your business connected a semipermanent basis? Or you consciousness for illustration this is still a short-term event?

Kurt Bitting

Well, I mean, I deliberation if you look astatine nan refining utilization rates that are projected by nan EIA, they are projected really to proceed to support higher rates successful nan mean term. So again, we do semipermanent agreements pinch our customers, refining customers and those continue. And they person -- they're very bullish connected their refining.

So I don't deliberation that our mindset successful position of utilization, I guess, is we work together pinch our customers and what nan EIA projects, which are going to beryllium precocious utilization rates. I would besides for illustration to item arsenic good is that it's not conscionable utilization. It's nan alkylate, nan worth of alkylate continues to beryllium very high, right, which is what we're linked to.

So refineries contempt immoderate utilization rates are, they're ever trying to push their alkylate units because it's 1 of nan highest separator products that nan refinery produces. It's needed successful gasoline exports and to nutrient premium gasoline.

Hamed Khorsand

Okay. Thank you.

Operator

And we'll return our adjacent mobility from Laurence Alexander pinch Jefferies.

Daniel Rizzo

This is Dan Rizzo for Laurence. I conscionable person a follow-up on, I think, it was David's question. You mentioned doing debottlenecking into sulfuric acid. I was conscionable wondering if it's imaginable aliases really overmuch it would costs for brownfield aliases greenfield description ?

Kurt Bitting

That's a difficult mobility to reply for description s. We look astatine a brownfield description arsenic we debottleneck instrumentality successful our plants each nan time. So if you look astatine a sulfuric acerb plant, it's made up of galore pieces, I would say, of modular-type instrumentality that arsenic those pieces of instrumentality age, and we switch and travel to extremity of life and we switch -- a batch of times, we're replacing pinch a portion of instrumentality that allows that works to nutrient much merchandise and upsizes, I guess, nan accumulation capacity of those plants.

So it's difficult to put a costs connected a brownfield because that's benignant of what we look astatine is we debottleneck definite units of nan sulfur works greenfield plants are evidently very costly and if we were going to spell successful a multiyear task to licence and construct. So if we were going to spell down that path, obviously, arsenic we've done successful nan past pinch our different capacity description s aliases different awesome investments, we would beryllium tying it to circumstantial customer aliases circumstantial conception demand.

Daniel Rizzo

All right. That's very helpful. And past conscionable 1 different question. Just broadly speaking, if we were to deed a recession successful nan U.S. by nan 2nd half of this twelvemonth into 2024, could you still deed your -- nan debased extremity of your outlook, your EBITDA outlook?

Kurt Bitting

Yes. I deliberation Mike and I person been pinch this -- person been pinch nan bequest businesses here, I think, since 2006. So we've had nan opportunity we've been done a mates of nan economical down cycles. And you look astatine each nan -- you look astatine nan conception trends, driving astir of our businesses really refinery, nan regeneration business is being driven by, again, utilization that request for alkylate, which we spot will proceed to beryllium strong.

Virgin acid, different ample merchandise statement of ours that's being really driven by things for illustration greenish technologies and low-carbon technologies and you talk astir mining. So we look astatine those types of things pinch nan underlying commodities proceed to beryllium beardown successful those areas. And those are really transitional. We talk astir mining and nan greenish exertion is really transitional. So moreover if location would beryllium a downturn, we judge those will proceed to beryllium beardown because there's dense investment, some backstage and authorities going into those areas.

And for Catalyst Technologies, a batch of nan aforesaid thing. Our high-density polyethylene catalyst income are continuing to support ray weighting of vehicles and packaging and movie arsenic good arsenic nan different things for illustration renewable fuels, and hydro cracking, which we're benefiting from beardown distillate request and beardown request for those renewable fuels. So we consciousness assured this business would beryllium resilient successful an economical downturn, and it's shown that to beryllium nan lawsuit during nan 2008 and 2020 downturns arsenic well.

Daniel Rizzo

All right. Thank you very much.

Operator

[Operator Instructions]. We'll return our adjacent mobility from David Silver pinch CLK.

David Silver

Hi. Thanks very much. I had a mates of questions. I conscionable wanted to commencement clarification, I think, connected nan taxation rates. So conscionable arsenic a perspective, but I deliberation successful 2022, we started retired reasoning nan taxation accrual complaint was going to beryllium person to 30% and it ne'er really reached that level connected an adjusted ground by my records that full year, and past it was much, overmuch little successful nan 4th quarter. Could you possibly remark connected that? And past successful particular, what benignant of scope is reasonable for utilizing for our 2023 forecast? Thank you.

Michael Feehan

Yes, David, it's Mike. Thank you for nan question. I deliberation successful nan past, we talked astir nan taxation complaint being successful nan mid to precocious 20s. So astir apt not rather approaching nan 30. I mean we are a home business, wherever a important magnitude of our accumulation does travel retired of nan U.S., which has a statutory complaint of 25% positive authorities taxes and such.

However, we do person opportunities to little our taxes done immoderate of our structures that we person and really we're trading our products, which puts america astir apt successful nan mid-20s connected a tally complaint basis. I deliberation our adjusted taxation complaint was astir 23% aliases 24% this past quarter. So we astir apt expect it to beryllium location successful nan mid-20s connected a go-forward basis.

David Silver

Okay. Thank you for that. My adjacent mobility would beryllium astir nan catalyst for renewable fuels. And I'm looking astatine nan very nan bottommost portion of Slide 7. But you talked astir nan opportunities successful sustainable aviation fuel, and I deliberation you utilized nan connection nascent, but nan portion of your renewable fuels business that goes into, I don't know, nan walk cooking lipid aliases nan mixed feedstocks. As I recall, I mean, that's a very bully profit-making opportunity for you conscionable owed to nan demands connected nan catalyst and possibly nan much predominant replacement rhythm aliases a shorter replacement cycle.

I'm conscionable curious, this is not a caller business, but why is accumulation capacity? I conjecture you're talking astir nan request for your merchandise rising for illustration 50% successful nan adjacent year. And what does Ecovyst person to do to beryllium afloat prepared to benignant of utilization that different maturation opportunity? Thank you.

Kurt Bitting

Yes. Thanks for nan question. So erstwhile you look astatine renewable fuels and nan caller accumulation units coming online are really being built to work nan 2 benignant of segments erstwhile we talk astir renewable diesel, which again is simply a driblet successful one-for-one replacement of regular roadworthy -- called regular sulfur -- ultra-low sulfur roadworthy diesel. The adjacent -- benignant of nan adjacent measurement of those processes and what a batch of nan caller units are being designed besides to make sustainable aviation fuel.

So arsenic we look guardant into benignant of nan 2025 to 2026 clip period, we spot much sustainable aviation substance being adopted, wherever airlines are going to commencement to blend up to 50% of that sustainable aviation substance into their substance blends to commencement to effort to execute their low-carbon technology. So that's really, arsenic you look down nan road, you spot renewable diesel, taking stock of nan diesel market, but past much I deliberation nan larger stock will travel really from aviation wherever it tin beryllium blended up into a 50% range.

But we expect growth, and I deliberation arsenic Mike had said, renewables successful nan debased double digits this year. And nan measurement we way and our Zeolyst that we waste into that manufacture are coveted for their purity and their performance. And we partner pinch really nan leaders of nan exertion successful those areas that are capturing a batch of those caller units. So we're positioning ourselves pinch our really Zeolyst expertise to use from nan maturation successful that conception going forward.

David Silver

Okay. Thank you very much.

Operator

We person nary further questions successful nan queue astatine this time. This does reason nan Ecovyst 4th fourth and afloat twelvemonth 2022 net telephone and webcast. Thank you for your participation. You whitethorn disconnect astatine immoderate time.

Editor: Naga



Read other contents from Beritaja.com at
More Source
↑
close