[Abrupt start] And I'll be your conference operator today. All participants lines have placed in a listen-only mode to prevent any background noise. After the speakers remarks there'll be question-and-answer session. [Operator Instructions] Please note today's call is being recorded. [Operator Instructions] I would now like to turn the conference over to Nahla Azmy, Head of Investor Relations. Please go ahead.

Thank you. Welcome to everyone joining us for our third quarter 2020 earnings call. We will start today with formal remarks from Belgacem Chariag, Chairman, President and Chief Executive Officer and Mike Crews, Executive Vice President and Chief Financial Officer. Then we will follow with a Q&A session. Please note that some of the information shared today is forward-looking information about the Company's results and plans, including with respect to the sale of our Performance Materials business, the strategic review of our performance chemicals business and our anticipated end-use demand trends in light of the challenges presented by COVID-19. This information is subject to risks and uncertainties that could cause the actual results and the implementation of the Company's plans to vary materially. These risks are discussed in the Company's filings with the SEC. Reconciliations of non-GAAP financial measures mentioned on today's call with their corresponding GAAP measures can be found in our earnings release and presentation materials posted on the Investors section of our website at www.pqcorp.com. With that, I'm pleased to turn the call to Belgacem.

Thank you, Nahla and good morning, everyone. As I hope you and your families are safe and well. First of all, let me tell you that we're very excited to connect with you today as we update you on our performance for the quarter and the most recent strategic moves. Beginning on Slide number 3, I would characterize our third quarter performance as one of continued executions against the backdrop of a macro environment that has improved, but is not yet out of the woods. Let's review highlights from the quarter. As always, we start with safety and I'm pleased to report that the results are outstanding. Our accident rates in the first nine months has been cut in half versus the same period last year. Our goal is to be in the top quartile of safety performance as reported by the American Chemistry Council and we're meeting that high bar so far in 2020. We continue to operate through the extended COVID-19 health risk environment with rigor, compliant with our own processes as well as global health guidance and recommendations. With global economic recovery occurring gradually, we carefully continue to optimize our supply capacity to match the evolving demand picture while effectively controlling cost. We're also ensuring that we maintain sufficient production flexibility to accommodate the continued rebound in demand. On the commercial side, we're pleased to announce the meaningful new contract in the refining services regeneration product line. This multi-year supply agreement starting in late 2021 positions us for a high single-digit increase for annualized regeneration services volume. We will supply this from our existing network having efficiently allocated capital to debottleneck our production capacity. Within performance chemicals, as part of the transformation plan. We announced that price increase across most product lines to reflect the commercial value…

Thank you, Belgacem and good morning. On Slide 5, you'll note this quarter was marked with solid financial performance that largely match our expectations. But for impacts related to Hurricane Laura and our hydrocracking order deferred in the fourth quarter that in total reduced sales by $9 million and adjusted EBITDA by $5 million. We saw top line growth in three of our four segments compared with the second quarter and we're pleased to post yet another quarter with healthy adjustment EBITDA margin to 27% on continued cost efficiency and resilient pricing. Now let's review each business segment and then the outlook beginning with refining services on Slide 6. Sales of $108 million were down 9% year-over-year largely driven by the past $5 million of lower sulfur and other raw material cost. We also saw reduced volumes for regeneration services as refinery utilization rates were negatively impacted by a combination of the pandemic and to a lesser extent hurricanes in the Gulf Coast region. I should note however, that regeneration services volume was up nearly 30% from the second quarter as gasoline inventories began to normalize on a rebound of economic activity. Virgin sulfuric acid volumes also saw a lift of 20% from the second quarter on improving industrial and mining demand trend. Adjusted EBITDA of $44 million declined 14% versus the prior year quarter largely on lower volumes while margins remained strong at 41%. Turning to Slide 7 for Catalysts. Silica catalysts sales of $23 million declined $2.5 million from the prior year. Double-digit gains in Polyolefin catalysts sales were more than offset by the timing of [indiscernible] relate order that was accelerated into the second quarter from the third. In the Zeolyst Joint Venture, sales of $27 million were about half of prior year levels. As we indicated…

Thank you, Mike. On Slide 11, I'll discuss the positive trajectory of PQ's strategic journey following our multiple [ph] announcements two weeks ago. This includes an agreement to sell our Performance Materials for $650 million, with expected close by year end. This brings an attractive valuation of 8.7 times in the last 12 months adjusted EBITDA and demonstrates that PQ's assets are more valuable than the current trading multiple of the company. We also announced the strategic review for Performance Chemicals which should the valuation warrant could result in a sale, in 2021. The purpose of these activities is to unlock greater shareholder value. It was notable that with the announcement of the sale of our longstanding Performance Materials business. It was recognized that we are selling our lowest margin business at a higher valuation multiples than PQ earns today. As these initiatives advance to their logical conclusions, our company will have taken major steps towards our simpler and stronger strategy. We'll have simplified the portfolio and strengthened the platform by emphasizing businesses with both higher margins and higher growth potential. At this time, I'd like to take you forward to our target portfolio and review, why we're excited about such an outcome. We will be focused on refining services and catalysts. Where we have leading businesses with excellent customer relationships, products and services that feed into the secular trend of the clean energy transition and the circle of plastic economy. So let's start with Catalysts on Slide 12. We strongly believe our catalysts business is well positioned for the future growth. We have leading technology and research efforts that will play a critical role in a sustainable economy. Though these trends are still nascent, our technical capabilities have created a leading position serving refining and petrochemicals manufacturing. Over the…

[Operator Instructions] and we'll go first to David Begleiter with Deutsche Bank.

Belgacem, just on the Q4 guidance. It appears a bit wide given you have October in hand and November where the books I guess are filling up. Can you talk about the upper and lower ends of the range and what that implies for more business momentum over the next couple of months?

Well based on what we saw in October, there's no surprises David. We continue to see that volume recovery. You might be nervous a little bit about the shortness that was on Q3. But that was not volume at all that was just event. We continue to see a recovery on volume. Our expectations remain accurate on what we should expect on Q4 and maintaining our guidance for the full year is a simple math and I think that should give you an idea on how Q4 should look like.

Understood and just on Performance Chemicals [indiscernible] been about two weeks since the big announcements on Performance Materials. Any additional thoughts as you view - begins about Performance Chemicals feature in the portfolio?

No new thoughts, it's just a continuing execution of the plan. We have a firm plan. We have done the thinking already. We have done a lot of homework and now we're really moving into actions and all the components and steps that will lead us to where we want to be. I think we remain very positive about this process and we're moving right along.

Thank you very much.

We'll go next to John McNulty with BMO Capital Markets.

So I guess there's a lot of moving parts when it comes to the refining services side of the business and with no refinery closures. But it sounded you're not necessarily exposed to any of them. You've got refiners running at or had been running at low rates, things are accelerating. I guess can you help us think about how you're thinking about 2021 in terms of the outlook for the refining services business?

Well it's a good question John. I just mentioned in my prepared remarks, how we feel about our position with the existing refining environment and the existing customers. We're connected to a very solid customer base. We have a very solid contract. The expectation have returned to pretty much normal. I said that we're going to be - our utilization will be at 90% to 92% level and we have seen that. If you remove the Hurricane impact that took place in Q3 since we're going on the right direction. So we remain very confident that we're going in the same direction, knowing the customer base we have and knowing of the strength of our virgin asset. We maintain the positive outlook for 2021.

Got it. Fair enough. And then it was the helpful on the cash flow guidance and particular on the CapEx side to see what it looks like excluding Performance Materials. With Performance Chemicals also looking like that, that maybe something that it doesn't necessarily stick around for much longer. Is there a way to cleave out what do the remaining business or what I guess we would call the core businesses? What's the CapEx outlook for them for 2020 and how much of that's maintenance versus how much of its growth CapEx? Is there a way that you can help us to quantify that?

John, this is Mike. We haven't woken out the Chemicals pieces yet and quite another detail that we have for Performance Materials. If you look at the remaining capital, we're still running it about 80% of maintenance with about remaining 20% on growth. So as we get a little further down the line, with the strategic review. We'll be able to pull more detail around CapEx and other components for Performance Chemicals.

Got it. Thanks very much for the color.

We'll go next to Chris Parkinson with Credit Suisse.

[Indiscernible] on your PowerPoint. Can you speak to the variants and entrants across your chemicals portfolio and just highlight anything that you think is particularly worth monitoring into 4Q and even 2021 just in terms of the divergence, is there basis on your products. And then you just also, just a very quick remark on what your own perception is of this segments long-term growth prospects. I would be greatly appreciated. Thank you.

Hi, Chris. On Performance Chemicals I think I cannot allude it to you, what is going on right now on the industrial side, there's a lot of recovery happening for the end users of our products. There's a lot of hospitality market that is returning as well in many places. Even though the recent news about the lockdown in Europe and other places get people nervous, on the longer run these lockdowns we believe they will not be the same as the previous ones that we've had early on. So I think if there's anything we need to take from these comments, that the Performance Chemicals end users return is happening and will continue to happen and maybe at different paces or speeds depending on where you are and what is it. So we see saw that, we saw - you saw our sodium silicate product sales have returned to a very good level which was an issue a couple quarters ago and a lot of the construction and coding products of recovery. So I think it might just hospitality that could be impacted in the next few quarters. But I believe, we will be fine. As for Q4, the quarter is - we're halfway through the quarter pretty much and I don't think we're going to see any negativity between now and the end of the year. Does that answer, Chris?

Yes, it does, very helpful as always. As a thought on this, on switching over to Catalysts. Can you offer us some further insights in the conversations that you had with customers some of your peers have been highlighting potential trade down, change over deferrals that's still problematic? I mean that also could indicate that it could be pent up demand in 2021, just how should we be thinking this new perspective? Thank you.

Sure, thank you. Look we have been looking at Catalysts of course since June when things started going down a little bit with the activity in the second half of the year. We have a clear view of what's happening in 2021 up until in September of 2021, based on the orders. So we have an idea of what's been pushed out and how much and where. So we do believe that 2021 will definitely some recovery from where we are right now and most likely towards the end of 2021, we're going to see pending anything else. We're going to see a stronger acceleration of recovery. 2022 will be really the shift and there's an argument between where the peak is going to be at 2022 or 2023 particularly for hydrocracking. We believe it's towards the end of 2022, early 2023. We're probably going to see another peak. And as you noted, when you looked at our peaks. We look at our peak activity and the way we performed on the peak activity. For the last 10 years every time there's a peak on hydrocracking activity or in that sense. We deliver higher than the previous peak, the trough would have been higher than the previous troughs. So our expectation is when we get to the next peak, we'll be at a continued growth slope that is better than what we had before, so that's why we're very optimistic. This thing has never failed. It just keeps growing, peaks and troughs. We'll know when they come. We know the frequency and we know exactly how to handle them and we're excited about what's really coming in 2022 and 2023 more so than 2021.

Great, thank you for the color.

Sure.

And we'll go next to Laurence Alexander with Jefferies. Please go ahead.

Good morning, this is Dan Rizwan for Laurence. As you focus on sustainability, is there anything you need to be adjusted or reformulate on your production process for title [ph] to refining?

The way we look at our sustainability, first of all supporting the customer and the way to more sustainable better fluids and reduced emissions, that's our mission. That's why we service the customer. Our own operation is however our internal program on quantum reduction and on activity to protect the environment from what we do in our own operations. But we are definitely moving in the same direction with our customers with the recycling on the sulfuric acid and then with the increased capability and capacity of octane increase for the fuels and improving our position with the customers to move in the right direction of their sustainability, I would say a transition to better fluids.

Okay, thanks. And then you mentioned that the hurricane is over the summer in September were somewhat of a headwind. I was just wondering at the recent one, I think there was one left this week, if that's causing any issues that you know as of right now.

No I'm not aware of any particular impact right now. Remember the one, the hurricane that took place in Q3 it has several impacts than usually in our customers than some on us a little bit, may on our customers and the result of slowdown in distribution and everything, that's what caused the misses that we've had. On this one, I'm not aware of anything substantial. So I wouldn't think it's a problem right now.

Thank you very much.

You're welcome.

[Operator Instructions] we'll go next to Vincent Andrews with Morgan Stanley.

Thank you for taking our question. This is Angel Castillo on for Vincent. Just wanted to circle back I guess on Catalysts. I just noticed on your slide. In terms of the silica catalysts guidance for the fourth quarter, it looks like you have it kind of moving toward yellow after in a little bit - a good performance year-over-year here. In terms of the fourth quarter typically, is that slowdown from 3Q more of a seasonality or is they, just comes or is there something that's changing beyond that? That lead you to believe that was a slowdown here on the fourth quarter.

That's a great observation. I'm glad you're looking at the colors. We believe that yellow color is just the stabilization. It's not going to grow because we've had a tremendous run previously. So it's a benchmark to the past basically. So we're confident that the overall growth of silica catalysts will continue to be high single-digit and then we - into the future and then we're confident that is a good position to be right now. So I would just say, that yellow is not a drop in market demand. It's just a benchmark to where we were before over a very strong period of time of that, the benchmark comparison color post. If this helps.

Yes, understood. That's very helpful. And then on the performance chemicals side, I think you noted North America highway demand perhaps slowing down a little bit because of COVID restriction and as I think about 2Q, it seemed like that business did just fine with the lockdown restrictions during that time. So could you just talk about what's changed in that business to your point on maybe lockdowns now are different than the past one? Or is there different at the government levels, local government level that you're seeing that, you need to believe that things are changing and how they're approaching highway striping write-downs?

That's a good question. This is not related to lockdown. This is related to operational procedures. You're talking about striping on highways and as you're striping different states have different policies and standards on, the number of people on location, their frequency, their timing and how they do that. That caused a little bit of precautious process that allowed kind of created a slowdown in certain states. But you know we operate in many states. So in average, even though we saw that we continued to see a strong practice in results in the other states. So it's really nothing to be concerned about as related to lockdown. It's just the way states implement health procedures on the number of people on location and how they execute, that's all, nothing else.

Okay, great. Thank you.

[Operator Instructions] we'll go next to Jeff [indiscernible] with JP Morgan.

I have a question about your Zeolyst joint venture. If you wanted to exit that joint venture, would Shell have a right at first refusal?

Well we're not at that stage of - Jeff thank you for the question first. We're not at that stage of having that conversation. So first of all, let me remind you that. The value of our partnership is the confidentiality of expertise with innovation, commercial and operational and we think that this combination allows both of us to lever something, the sheer leverage is PQ's expertise in Zeolyst Technologies for emission control primarily and we leverage Shell's expertise in hydrocracking and then maximizing yield in gasoline and distillate. At this point we continue to see more advantages to maintaining the structure. We think there's a tremendous growth potential both on the volume perspective and also on the technology and collaboration perspective. So we're really not talking about that conversation and that's all I can say about this for now.

Okay, do you see the hydrocracking market is being pretty dead for 2021 and picking up in 2022 or do you think that there can be more activity next year?

Fully dead, is a big statement. I don't think it's going to be pretty [ph] dead. I think it's going to be an improvement over what we're seeing right now. So 2021, if you want to draw chart of what hydrocracking - what I think personally hydrocracking, use one of the low point where we are today and you draw slope. It depends on what happens, that slope could be stronger or lower. In Q 2021, 2022 and 2023, that's how we see it and we're confident based on the orders we're getting for 2021. We think that recovery is happening and we wait and see how that turns out at the beginning of the year because we have a view of six to eight months or to nine months of orders and our view of the market going forward seems to be accurate for now.

Okay, great. Thank you so much.

You're welcome.

There are no questions at this time. And this conclude today's program. We appreciate your participation and you may now disconnect.