Please stand by. Your program is about to begin. . Good morning. My name is Britney and I'll be your conference operator today. Welcome to the Ecovyst Fourth Quarter and full-year 2021 Earnings Call and webcast. Please note today's call is being recorded and should run approximately one hour. Currently, all participants have been placed in a listen-only mode to prevent any background noise. After the speaker’s remarks there will be a question-and-answer session. I would now like to turn the call over to Chris Evans, Director of Investor Relations and Financial Communications. Please go ahead.

Thank you. Welcome, everyone and thank you for joining us for our fourth quarter 2021 earnings call. We will start today with formal remarks from Belgacem Chariag, Chairman, President & Chief Executive Officer, and Michael Feehan, Vice President & Chief Financial Officer. Then we will follow with a Q&A session. Please note that some of the information shared today is forward-looking, including information about the company's financial and operating performance strategies, our anticipated end-use demand trends, our 2022 financial outlook, and our 2025 goals. 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 on today's call, with the corresponding GAAP measures, can be found in our earnings release and presentation materials posted on the Investors section of our website at www.ecovyst.com. And with that, I'm pleased to turn the call over to Belgacem.

Thank you, Chris. And thank you to everyone joining us today. I'm very proud of what we accomplished in 2021. It was highly successful and transformational year, as the Ecovyst team achieved remarkable financial performance and delivered on our strategic vision to create simpler and stronger portfolio. Most importantly, we successfully completed our transformational journey, with the launch of Ecovyst, a pure-play catalyst and services company. We are now aligned around two strong, complementary, and growing businesses, each with high margin, high growth rates and robust cash generation. We are uniquely positioned to support the green energy transition. Today, our products help our customers to achieve their sustainability goals. Our innovation pipeline is increasingly focused on sustainable solutions in areas such as biomass, renewable fuels, and plastic circularity. We are very confident in our strategy and the industry trends, and we remain on pace to achieve the 2025 financial goals we laid out at our Investor Day last April. Meanwhile, we are committed to and acting on our own key ESG goals. Our sustainability ambitions are centre to our mission and complementary to our financial growth. In 2021, we implemented a comprehensive set up sustainability goals for 2025 and 2030, which define our path towards de - carbonization and waste reduction. 2021 was challenging operational year from the pandemic and supply chain complications. Throughout it all, we maintained a high level of customer support, and operational performance. Our successful execution was critical to deliver in a solid year and fourth quarter performance. We will go through these financials in more details later. But I'll comment on a few points worth noting. 2021 earnings exceeded our upgraded financial guidance. As we delivered a solid fourth quarter. Volumes rebounded across the entire portfolio, driving sales and boasting profitability. We are succeeding in…

Thank you, Belgacem. And good morning, everyone. I'm glad that you joined us today as I'm excited to share our fourth-quarter and full-year results, as well as our 2022 financial outlook with you. As mentioned during our third quarter earnings call in early November, we expected to see continued strong sales and adjusted EBITDA growth in the fourth quarter. This morning, I'm excited to report that we delivered ahead of our performance expectations. During the quarter, total sales including our 50% share of the Zeolyst JV and adjusted EBITDA grew 35% and 38%, respectively, year-over-year. Demand for polyethylene catalyst and hydrocracking catalyst led the way along with a broad-based rebound in demand across most other product categories. Higher variable costs, partially driven by inflation such as sulfur, natural gas, and logistical costs were more than offset by contractual price adjustments, allowing strong earnings growth. Adjusted EBITDA margins increased to 30.6% despite a 280 basis point negative impact from the dollar for dollar pass-through of higher sulfur costs. Our fourth quarter was the final leg in the delivery of a remarkable financial performance for the year. While 2021, particularly the second half, was partially a story of recovery from the impact of the global pandemic, we also saw strong demand in certain areas like renewable fuels and polyethylene catalyst driving our full-year results. Higher demand, increased pricing, and stable mix resulted in a year-over-year 19% growth in sales and an 18% growth in adjusted EBITDA, and a 30.7% adjusted EBITDA margin included a 220 basis point negative impact from the pass through of higher sulfur costs. In addition, we generated $93 million of adjusted free cash flow during the year. And as promised, we reduced our leverage ratio by more than a half a turn, to end the year at 3.3…

Thanks Mike, you heard our story for the strong fourth-quarter and full-year 2021 performance, our positive outlook for 2022, as well as our confidence strategic progress. Now, I'd like to summarize a few key takeaways. First, we have the right strategy at the right time. Our businesses are aligned around strong secular trends, which are driving the clean energy transition and accelerating our growth. Second, we entered 2022 with momentum in our core markets reflected in our strong 2022 financial outlook. Third, our teams are doing a great job of mitigating supply chain issues, and we are well-prepared to drive growth while offsetting inflationary items. And finally, I am very proud and grateful for the dedication and resiliency of the entire Ecovyst team for delivering a great year and setting us up for a remarkable 2022. This concludes our formal remarks. We're now ready to take your questions.

. And we will take our first question from Angel Castillo with Morgan Stanley.

Hi, good morning and congrats on the strong quarter. Just wanted to circle back a little bit more on the pass through, just wondering if you could give us, a little bit more details here, very strong performance in terms of the price cost. As we think about maybe how much of that is just directly through contracts versus is there any incremental that you may be going out to get to make sure to cover, something that may not be contractually, already set up. And as you think about the following quarter and into 2022, should we think about both at $50 million and other incremental price that you might be out to get to cover costs.

Thanks, Angel. It's a great question. So from a past-through perspective, about 90% of our costs in Ecoservices are pass-through on that basis. And we're still able to capture the other 10% even though they're not contractually obligated, we still have the ability just given our relationships to pass those through. So we really feel comfortable that we're protected against cost like that. In addition, and that's really on the Ecoservices side, but on the catalyst side, there aren't contractual pass - throughs, but we've been very successful at working with our customers and being able to pass through any higher raw material costs. We were able to do that in the fourth quarter. And a lot of that is starting to come to fruition in the first quarter this year as well. So we do have the ability outside of contracts from an incremental standpoint to your question to take any additional costs and pass those through. That really gives us a lot of comfort in this period of high inflation that we can really benefit from that and we're very well protected. For 2022, I think we commented a little bit on that. Some of those sulfur pass-through costs is coming through, we do expect it to be higher in 2022 versus 2021. And again, it's dollar for dollar. It does impact our margin but it has no impact on our overall earnings.

Let me add one comment on the catalyst component as well, Angel. Yes. I mean, it's most forward in the Ecoservices, but on the catalyst side, the team has managed to pull a very aggressive campaign on value pricing and price increases. That will be extremely beneficial for us in '22 and even beyond. They've done -- They've done a focus on not only raw material adjustments and indexing but also pricing on technology. And we're very happy with the momentum they've picked up this year. All that contributed to the numbers and I think it's going to be here for a long time.

Understood. And interesting to -- on the catalyst front, you have this aggressive campaign to recover cost, but also you noted the market share gains on, I think it was the polyethylene side. It will go through the year a little bit more colour as to what you're seeing. What is driving some of this, and how should we kind of expect it to proceed going forward?

Yeah, we've been working on share gain on Silica catalyst for a while with customers. The process takes years sometimes to get processed, accepted, modified. We're seeing the beginning of the penetration of some of our new technology. And so that market share gain is something we expect to continue. And obviously, centering with new technology is well-priced. And we believe the quality of earnings from the new technology catalyst is also going to continue to improve. And now that explains a lot the reason why we are outgrowing the market from a growth perspective, not necessarily volume only, but new technology coming in and better pricing.

Very helpful. Thank you.

You're welcome, Angel.

I will take our next question from David Begleiter with Deutsche Bank. Your line is open.

Thank you. Good morning. Can you discuss your cap allocation priorities for this year in terms of debt reduction and other aspects? Thank you.

Yes. Sure David, our capital allocation process is still pretty similar from what we've shown before. I mean, we've demonstrated that we can generate some significant cash flow both in what we've shown in 2021, as well as what our guidance is for next year. We were able to reduce our leverage ratio down to 3.3 times. So as we continue to generate that strong cash flow, we're going to continue to look to either pay down debt, reduce our leverage, continue to reduce our leverage, or look at opportunistic bolt-on acquisitions similar to the Chem32 acquisition that we did last year. Those can come up and we just need to be prepared as we look for something that's going to be accretive to the business or strategically linked in with our businesses. So we continue to go down that process.

Very good. And Belgacem, can you just discuss the improvement you're looking for in Q2 and beyond versus Q1 and kind of cadence of earnings against those full-year guidance. Thank you.

I'll give a high level comment and then Mike can probably give you a little bit more colour. Last year, 2021, we saw a unique performance in terms of a low first half and a strong second half. We went into the H2 and delivered 40% improvement over H1 in terms of adjusted EBITDA, and we delivered exactly to our guidance. And there is a tailwind, going forward moving towards the recovery of hydrocracking, recovery -- continuous growth of polyethylene, market, recovery of some of the emission control. Everything we set forward is happening from a recovery perspective. This quarter Q1 was strong -- Q4, sorry, was strong, which indicates that we're going forward into a strong Q1 and Mike gave you a little bit of a guidance on how we feel. The Q1 2022 versus last year, granted last year we had some events freeze and all that, but it's going to be a stronger quarter comparable to Q4. We see the cadence to be smoother this year. We're going to see a slow improvement all the way to the end of the year. The typical cadence is a low Q1, a strong Q2 and Q3 and a slightly lower Q4 based on all the maintenance work and some of the seasonal stuff. So we're going back this year to the typical cadence of quarters, so we do expect a great Q2 and Q3 for the year.

Very good. Thank you.

Mike.

Yeah. The only thing I would add just as we look at that is if you look back at 2020, obviously that was a year with COVID and then you throw that out somewhat and then last year, of course, with the early part of the year not being as strong as the second half, but to Belgacem's point, if you do look at the Ecoservices that have a little more of the seasonality where the catalyst businesses is going to be a little smoother.

Great, thank you.

Sure.

We will take our next question from John McNulty with BMO Capital Markets.

Hi, this is Caleb on for John, hope that's all right.

Hey Caleb.

Thanks for taking my question. I was just wondering if you could give us an update on, I believe it was on the last quarter earnings call you did comment on like eight new commercial projects and I was just wondering if you could walk us through how those are progressing and then when you see those projects coming online.

Yes, we have quite a bit of new technology introduction this year, which means commercial. Everything is going exactly as we want. We as you know have shifted focus from projects to others, focusing on a bunch of emission control related projects that will answer the questions to the regulation changes, and some of the areas around polyethylene and Zeolyst catalyst for renewables. Everything has come along exactly as we planned. We should see more of that coming in towards the second half of the year rather, but we will have the plan executed and we're excited about what's coming the following year. Caleb?

I apologize.

I was going to make sure that Caleb got the answer.

And we will take our next question from PJ Juvekar with Citi. Your line is now open.

Hi, this is Patrick Cunningham for PJ. Good morning, everyone.

Good morning, Patrick.

I just had a question -- I had a question about plastic circularity and kind of your potential product offering there. I guess what I'm trying to understand is what -- where are the areas that you play, which markets are you potentially exposed to and how differentiated is this technology and potential upside from it going forward?

Yeah. Thank you for the question. We did say before that our technology, in the plastic circularity is going to play in the pyrolysis process. And we believe that we have unique technology that has been proven and approved by some of the first-comers or the customers that are really more advanced than others. We do anticipate as we go into the pilot testing beyond the lab testing with the pilot plans for our customers that we're going to start seeing some volumes coming in from a pilot testing confirmation. And we anticipate into -- as we said before, into '24 and '25 to start having a fully commercial line with volumes that we're excited about. So it's pure pyrolysis, which seems to become more and more the most favourable -- the more favourable process going forward and we're aligned with at least two customers that are in the lead right now. That's all I can say.

Yeah, thanks. That's helpful, the high-level overview. And then maybe just a quick one, as you have almost a full year sales from the 1032 and -- just want to get an update on how the integration going, how it's really making the progress that you had hoped on synergy capture, just any sort of detail there would be helpful. Thanks.

To be honest, I've done a lot of integration's and acquisitions, smaller ones, technology ones in the past, but this is one of the best ones. Personally. I believe the technology delivered beyond our own expectation and the integration process has gone really well. The team has done really well. It was well accepted by everybody, including our customers. We've increased our sales. We've increased our capability to the debottleneck the process. It's going so well that we're now looking at expanding maybe end of '22 to early '23 to see if we can increase capacity, because we've been on high demand, and the target is that we increase at least 50% capacity in the year-and-a-half for two years before we go overseas beyond that. So that's how excited we are about it.

That's great. Thank you.

You're welcome.

Now we want to take our next question from Aleksey Yefremov with KeyBanc. Your line is open.

Thank you. Good morning, everyone. Belgacem, and you just gave us some update on pyrolysis, do you have any updated view on how large this business could be for Ecovyst, maybe, let's say by 2025 or whatever year, you feel is relevant.

It's tough Aleksey, how are you doing? It's tough to give a size, but we're in the leading position right now. We think pyrolysis is one of the preferred processes. We are working with fast runners or first comers. And we think we're going to be out in the market sooner than later. But you know, the recycling or circularity is got several other processes. The mechanical component of recycling is not going to go away immediately. So that's going to be a slow build, but we're very excited that we're on the -- ahead of the curve. And I think we're going to see an increase in volumes accelerated beyond '24 and '25 in the second half of the decade and we're excited about it, I can't quantify it, but it's going to be a pretty good important business for us.

Thank you, Belgacem. On margins before gases, I think you saw higher margins this year. I think that you see higher margins per tonne or dollars per tonne next year as well. Is this sustainable level or could you have sustained margins at this elevated level beyond '22? And is there any new capacity here on the horizon from competitors perhaps over the next two, three years.

First of all, let me just set it up. We serve -- in diversion asset; we serve primarily three pockets of end uses. We serve the industrial component of the market, which is -- probably takes up like half of our sales into chloride, alkali, batteries, chemical, steel, tires recently, at a decent good margin. We serve the nylon part of the market in automotive packaging and construction, maybe that's 20% to 25% of our sales, at also really good margin, and we are serving the fastest-growing component of the market, which is the mining. As you know, bore rates, we use two tons of acid per ton of bore rate at a decent margin as well. Copper is -- the ratio is 4-1, and lithium is 20-1. Today we're growing fast in bore rates and copper. Lithium is the next area because you really need to be nearby the assets to be able to serve them efficiently and we're working some plans forward to participate further in lithium. But you know the sulfur pricing, which probably is going to increase a little bit more after the Ukraine thing since Russia is a net exporter of sulfur, we could see some tightness in the market in Europe and here, which could raise the sulfur pricing. But we're protected from that in the first place. But as you, look at how we measure our performance, we measure our performance into price per ton. And what we managed to do, at least in 2021 is grow that between 3% and 5%, actually it was about 5%. And going forward for 2022, we project to maintain that performance of 3% to 5% for the foreseeable future. So we believe that is doable and we think we're playing in the right components of the market, so we're very excited about the virgin asses part of the business.

Thanks, Belgacem.

Thank you.

We will take our next question from Laurence Alexander with Jefferies. Your line is now open.

Good morning. You mentioned sort of the regulatory shifts on the clean fuel standards and you've laid out in the past your longer-term growth aspirations for the clean fuels business. As you look at those regulatory shifts, whether in Canada or elsewhere, is that going to be incremental to the growth path you previously sketched out, or does it just give you more confidence that that path is achievable.

Well, I can't say if it's more incremental depending on the rigor implementation and the speed of implementation. But the more the regulations get implementing the faster, the more we have incremental growth. So when you look at some of those in the U.S. and even if you go overseas with what's going on in China right now, what's going on in India, in Japan, in Korea, there's a lot of activity towards some of those regulatory requirements for Clean Air that we're very excited about being able to bring to the market technologies that I talked about earlier, especially in the next year or two. That will be unique into being able to handle those expectations from a temperature standpoint and performance overall of the market. So it's not direct incremental, but it's supportive plus incremental if we get those regulations implemented sooner and with rigor. China fix has been talked to for years and it's only recently that it's got implemented. So building our plans based on those is not necessarily the right thing to do, but we do hope that they get implemented. When they do, the portion that gets implemented will be incremental. So we're very excited about those regulations. And we're excited that the pipeline of innovation that we have is working towards that as we get Europeans to be more rigorous in implementing, as we get China and the other countries I mentioned to initiate those regulations and get started I think we're going to be in a really good shape for emission control.

Okay, great. Thank you very much.

Thank you Alexander.

Now will take our next question from David Silver with CL King. Your line is now open.

Okay. Thank you very much. So I had maybe a couple of questions. The first one would just be the quarterly trend within your Ecoservices business. You laid out a number of metrics, you called out the strength in the Virgin asset portion of that business. And I think there was a comment about, overall volumes had returned to pre -pandemic levels. I was just wondering if you could maybe elaborate on how the traditional or the non-virgin side of the Ecoservices business did this quarter? In other words, was the growth still strong, but maybe just a little less so than the virgin side or was there a difference in the performance on the recycling, the regeneration aspects of that business? Thank you.

Yes, sure David. If you look at the regeneration services side of the business, we still see very strong demand in that market. I mean, that's the service business that's used to help produce Alkylate at the refineries. And as we like to say, that's one of the more profitable sides of the refinery where they look at that as liquid gold. The demand for that is very strong. It continues to be strong. That is the one that probably has a little more of the seasonality where Q1 and Q4, are a little lighter than Q2 and Q3. A lot of that is based on partially miles driven, but also when refineries go down for their turnarounds and then we, have our turnarounds around the same time as them, in the first and fourth quarter. So the demand for region is still strong and the cadence is really a stronger second and third quarter. For virgin, we did see a very strong fourth quarter. It was up compared to last year. Fourth quarter is also up compared to the third quarter. So a lot of that is the continued strong demand for virgin sulfuric acid used in mining and everything else that Belgacem was talking about, nylon and industrial use. And we continue to see that being strong going forward.

Yeah. Okay. Thank you for that. I forgot to mention, but I did want an update on the new contract, the new customer that you had acquired that was discussed in the last quarter or two, but I believe that new services contract, the $10 million more revenue opportunity was set to kick off I think January 1. Could I just get a quick update on that?

It's up and running. It's kicked off in December, actually, David,

December. Thank you. I did want to ask about the liquidity. I usually look for that in your release, but could we just get a quick update on where your total liquidity is relative to a few months ago, three months ago. And then do you anticipate any need to make moves to give yourself greater liquidity in 2022? I mean you've talked about a number of growth opportunities, Chem32 and some other areas, plus the desire to remain opportunistic. So is your current liquidity or access -- easy access to incremental funding sufficient for the next year or so? Thanks.

Yes. Sure. Our liquidity has improved. We were a $165 million at the end of the third quarter, and a little over 200 million in December. We don't see any need for additional liquidity down the road. I think with our strong cash generation and our access to our ABL revolver, that we won't have any issues with it. So, we're very comfortable with the position we're at. And if those Chem32 type acquisitions come about, we have adequate liquidity to make a move at the right time.

And then finally I just have maybe a more of a general question about the operating environment. And in particular, the price of crude oil and how that flows through to the costs of the products that your customers sell but, I'll stipulate upfront am the world's worst price predictor for something like crude oil. But the trend throughout the last year or so has been steadily in one direction up and whether it's continued economic recovery or geopolitics, a lot of people are thinking the price might continue on in an upward direction. So I'm not talking about a steep recession or some other hugely disruptive event, but assumingly there's trend line economic growth, but we're in a much higher crude price environment, 2022 versus 2021. Can you reflect back on how that tends to impact your business, in other words, how refining customers view, the cadence of catalyst placement, or how fuel makers kind of view the value of the -- the higher value or value-added catalysts you provide? Assuming we're in a structurally higher crude oil environment for an extended period of time. How do you think that would impact your overall business and your ability to meet your 2022 targets? Thanks.

That's a very deep question, David and I will rank myself just behind you in predicting the oil price. But we do look at energy costs overall. What matters -- both matters -- the crude oil and the gas, both matter and I'll explain a little bit. The crude oil price matters for our refining customers. The speed of acceleration that they do, the activity level, which probably impacts -- indirectly impacts our volumes in terms of sales, the frequency of change-outs, how we run refineries, so we provided that this is, not a very short period of time that is not a three-month deal or six months deal. This could be pretty positive to an extent in certain areas. Maybe it's going to impact some of our regeneration business a little bit, maybe it will impact the driving, driven miles a little bit from a cost perspective, but overall, it's a positive environment when refineries are making money. On the gas pricing side, energy, raw material, the highest level of raw materials that impacts our business is sulfur, and then the second is the energy and including gas for our manufacturing assets. We have the ability to pass through these energy cost changes or pricing changes to our customers across the board, not only in the Ecoservices, but also on the catalyst business in European plants and here as well. We're not concerned about the gas price raw material increase. We're not concerned about the sulfur price increase, which could also be or drop because could also be the outcome of increased activity in the refineries, we're covered out there from a business perspective we could see an upside, but who knows how long this is going to be. Maybe people are going to operate with more prudent perspective and not getting too excited about an event and then pacing themselves a little bit better than we did in the past. And in any case, we're good. We like it, we like when there is energy around and we like when there are expectations to be, the world is more positive, which will impact a few other things from a GDP growth perspective and everything which could help the rest of the business, which is not directly linked to energy. I don't know if this helps David, but it's pricing going up as long as it doesn't go to $250 a barrel, which some people are speculating. But as long as it stays within the most reasonable expectation $100, $120, $130 decent believable, credible, if that's the case, we're always in good check.

All right. Thank you for that. I know that was kind of a PhD thesis question, but thank you for that I appreciate your thoughts.

You're very welcome.

We have no further questions on the line at this time. This does conclude today's program. Thank you for your participation. You may disconnect at any time and have a wonderful day.